Wall Street has always attracted investors from all over the world who wanted to try their hand at this powerful American market. The US stock exchange tempts primarily with its size and the ability to choose from tens of thousands of global companies, but that's not all.
New York offers access to professional tools, data, information, indicators, analyzes and recommendations. Thanks to this, trading on the stock exchange finally becomes real investing, not playing casino games. However, the question remains: how to go about all this?
The NYSE is, above all, the opportunity to use the most advanced financial instruments ever created. Short selling is common here, i.e. the possibility of betting on share declines, or trading in options and other derivatives, which opens up a spectrum of completely new opportunities for investors.
When it comes to the "cheap" parameter, we are talking about valuation. Studying the valuation of a company involves relating the price of its shares to what these shares give the investor in return. In return, the investor, of course, receives part of the company's revenue (price-to-sales parameter), part of the profit (price-to-earnings), part of its book value (price-to-book value) or part of the cash generated from operating activities (price -to-cash from operations).
The purpose of examining ratios of this type is to answer the question: how many dollars do I have to pay in the share price today to be entitled to receive one dollar of revenue, profit or book value from the company I am buying in the future.
All mentioned indicators are compared both historically to check whether today's level means expensive or cheap, but also related to companies operating in the same industry, so you can easily determine whether Coca-Cola shares are currently cheaper than PepsiCo shares. If in exchange for one dollar of profit generated by the first company, the investor has to pay USD 30 in the share price, and in the case of the second company he has to pay USD 33 for the same dollar of profit, then the shares of the first company are cheaper (better valued).
Another aspect is to examine the increase in debt and assess whether it is at an acceptable level (below 30% of the value of assets) and whether the trend of increasing this debt is not increasing.
The investor should check not only the amount of the debt itself, but also the cost of its servicing, which can then be related to the profit or cash generated by the company every year. Thanks to this, it is possible to answer the question whether the company can afford to service its debt.
All this data needed to evaluate each stock is located in the financial statements, to which the broker provides free access. The most important thing is to learn to read and interpret them correctly, which, contrary to appearances, is not that difficult.
And you must remember that it is not enough to invest in shares with a good fundamental situation or in shares that are simply cheap. Safe shares do not have to be profitable, and cheap shares do not have to be safe.
Only meeting the three mentioned conditions will help the investor achieve success not only on the US stock exchange, but on every stock market. The principles of selecting companies for the portfolio are universal, regardless of whether we are talking about investing in the American or any other global stock exchange.
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