List of Financial Strengths of Company

Before investing in the company through buying its shares, it is very necessary to check the strength and weakness of same company. If there is strength in the company, we can believe on same company. We have to get benefit because strength help it to gain more and more opportunity and survive in the time of adversity. 

Following are the my top list of Financial Strength of any company

1. Company with No Debt

That is the great strength. Suppose, a person who has nothing assets and debt of $ 1 Million. How will he feel. Will you help him. Surely no. because he has nothing strength to refund your debt because he has to pay $ 1 million debt. Like this, there is company who has big debt and 90% debt and 10% own capital is a very weak company from financial point of view. Because a small adversity will have the big risk of your invested money in its share. 

So, company with no debt is great company from financial point of view. It has own share capital and it can face every challenge in the business and you can sell your share any time. So, check this point. If company as taken 10% to 20% debt, then also no issue. This was because company use his debt as leverage for increasing his profit and give more happiness to shareholder by booming his earning per share. 

2. Increasing in the Net Profit with Increasing its Profit Margin Year over Year 

If we have compared YOY*  income statements and we find that net profit is increasing but we also check whether our profit margin is also increasing. Profit margin means % of income on sale for example, I got 20% margin on the sale of any book and if margin will be 25% and it will help me to do more business because my cost is decreasing and my sale is increasing. 

Sale-cost/ sale X 100 = profit margin

and with its increasing, if sale is increasing and net profit is increasing, company is doing best and its share should be bought by investor. 

YOY * means year over year comparision of any financial statement for knowing performance of company financial position or results whether it is growing or same or decreasing as bad performance. 

3. Improving Net Cash Flow for Last few years

This is great signal of financial strength of company if it is improving its net cash flow for last few years. 

4. FII / FPI or Institutions increasing their shareholding

If FII and FPI or Institutions are buying and increasing their buying of same company shares, it shows the strength of same company.

First of all you should know who is FII. FII means foreign institutional investors. They are company type, they may be hedge fund company or mutual fund company or share investing company who is registered outside India and investing in specific company. But why, because it has huge investigation data. FII is seeing their wealth growth and earning growth in same company. That is reason, it is investing in it. That is great sign of company's strength. You should also buy it and it will give you high return.

5.  Company with Zero Promoter Pledge

Promoter pledge means company kept the shares of company's promoters for getting loan because no one can give the loan to company when it is new and majority of shares in the pocket of promoters and promoters are the shareholder who incorporate the company from any small business. If you want to buy the share, you have to see this fact. If company pledge its promoters' share it is not good. If not, it is good strength and company is operating the business from its own share capital and have other resources instead own share capital as pledge. 

I explain it simple example 

For example, company has Rs. 10000  share capital when share price is  Rs. 1000. Promoter has 75% shares. Now company has given the promoter share as pledge and got Rs. 6000 as loan. When market has crashed and share value came Rs. 500 per share. Bank came to same company and asked more pledge because value of shares has decreased from its given secured loan. But bank is unable to give more pledge of public issue. Now, bank has right and sold in the market with the price Rs. 450 because first cover and people are not buying at Rs. 500. This is so bad because when price of share marketing decreasing, promoter's pledge also playing a bad player and your own value is now Rs. 400. What a bad game. If you see advance promoter's pledge, you can stop to invest because it has less strength, it is controlled by loan giver who is interested to secure his debt not value of shareholders's share.