There are many times when investors buy shares with just the symbol and tip from a buddy. Its true that many companies that trade have very little to offer but somehow managed to increase in value either short term or over the long haul. Its good to arm yourself with the best information possible, especially when it's available for no charge. Some important basics to run through your checklist can help you decide on your goals with any particular company, whether to buy a stock as a quick play on news or rather invest in a company for the short or long term.

Revenues
Revenues show how much a company is making. Profit can be figured out by finding out the cost of a product and minus it from the revenue (Profit=Revenue minus Cost). However many micro cap stocks may not be producing revenues at all if they are in their development stage or attempting to bring a new product to the market. If the company has been around for some time they will need to produce revenue to set off the costs. In growth stage companies, it is good to note if the company is showing a trend of increasing revenues.

Earnings
Revenues are just the first indicator to Earnings. It is every companies goal to eventually make money, and when a company starts to provide more revenues than costs is when a company heads into the positive. Earnings that are positive have an overwhelming effect on micro cap companies because they track to becoming a growing company with fundamentals. If a company is weak in their cash position or do not have the means of proper funding from outside sources, positive earnings is key to helping a company stay ahead, help broaden their funding capabilities, and put them in position to implement their game plan.

Losses & Debt
Many start up companies in the micro cap arena take on a considerable amount of losses in their initial years in business. When reading companies quarterly reports its good to point out if a company has been lowering their losses consecutively each quarter or continually increase their losses per quarter. Losses bring on bigger debt a lot times with drastic funding options such as convertible debentures ("CD") which can reduce the price of a stock through dilution. Being aware of companies funding options can help decide what price range might be right. For instance if a company that you like is currently being funded through a convertible debenture it may be in your best interest to find an entry point after the "CD" has been converted. Tremendous debt can be detrimental in many ways, as interest payments can cut into earnings, and creditors can pull strings at inopportune times, effectively sweeping the feet out from under a weak company.

Assets
Cash, Inventories of all kinds, and property of a company hold some value and can give you a rough idea of the status of a company. If a company has five million in cash with another five million in inventory, with yearly costs totaling one million; you could make the assumption that the company would be able to meet their operational obligations for quite some time. If the company has a considerable amount of miscellaneous assets, the company may be able to sell them off to raise the capital they need. But it should be noted that if the company has lower assets than the total of their liabilities, it is likely the company will be reaching for a quick resource of funding/financing to meet their bills.

Liabilities
Liabilities are how much the company owes. The lower liabilities the better, especially when matched against its assets. In many cases, there should be higher liabilities compared to assets. If they are higher than there should be a trend showing liabilities lowering each quarter and assets increasing. A good standard to rule by should show assets twice as much than liabilities.

Basics
Every investor should learn the basics to help them with their investing objectives either short term or long term. Jumping into a stock that has some good developments may be good for a quick trade or a short term strategy, but learning a little more about the company can help you invest without emotion but on fundamentals.

Disclaimer
This Editorial is for information purposes only. Please review our disclaimer.