It is very important to analyze well all the aspects of the investment beforehand. Investment analysis is the study of how a certain investment may perform or how well suited it could be to a given investor. An investor needs to look back into previously made investing decisions and consider points such as entry price, expected time horizon and the reasons for making that decision at the time.
So, before you make any investment you should analyze the following points.
Understand the Business
You should stick to those businesses which you understand well. Use the product yourself; get your personal feedback to be more confident about your investment. Before investing in a company study the business well.
Analyze the Company
Before you actually invest in a company you need to analyze it first by talking to the CEO of the company. This will let you know if you share the vision and values of the CEO or not. It will also make it clear to you if the CEO and the leadership teams can even execute their vision. You need to talk to the CEO to determine the risks associated with its execution and decide if you believe in the company and the CEO’s ability to deliver results.
Diversify the Strategy
To do well and be a successful investor, you need to analyze your options and invest in multiple companies. To need to determine how much you want to allocate to this asset class and then diversify your investments. This will ensure that the risks are reduced and your chances for success increased.
Consult a professional investor of and around the industry that you are interested in or an investment banker dedicated in this area. If you happen to know no one that may of help, you may want to start looking up for somebody online, like that on LinkedIn. It will help you get answers to your questions and may even help you with those queries which you didn’t even have an idea they needed to be asked.
Talk to Customers
Talking to the customers gives you the first hand insight on how the product practically is. You will get to know their user experience, the product’s usability and advantages, where the product lacks, if the customers think of some another product to be of its alternative and if they would remain loyal if the competitor lowered the prices. But most importantly you would get to know if they will recommend it.
Understand the Growth
To understand how the company grew or is growing; organically (in the same store) or through distribution, and what is its pattern of growth; you need to look up the financial statements. The financial statements include the balance sheet, income statement and cash-flow statement. In the consumer sector you may ask for the retail level sales.
Understand the Economics
Calculate the per unit loss or gain on the manufacturing etc. of the product. Unfortunately, many companies lose money on each unit they sell and worse, for the investors, they do not have a plan to alter that condition. To save you from this loss, calculate the per unit costs by subtracting the full costs (including the marketing and distribution costs) from the revenue generated.
Determine Valuation of the Company
Closely study the market for the company that you are interested in and similar companies from the angles of revenue, net income, growth rate, risk profile and capital structure.
Know the Exit Strategy
You also need to know the exit strategy of the company of your interest. Determine how big is the business needed to be and with what margins to become public or be an attractive acquisition target. In consumer and retail businesses where generally IPO is rare, you need to ask who could be the potential buyers when it reaches its ideal scale.
Talk to Lawyer
Get all your legal documents related to the investment in the private sector, straight. Show them to your lawyer and get his feedback on them, since these are quite complicated.