Ask Colin

In assessing the fundamentals of a company, using the value method, what should I look at?

The key things to consider are those listed in my article in Shares magazine April 2002 on pages 72 and 73:

  • Adequate size of company
  • Sufficiently strong financial position
  • Earnings stability
  • Dividend record
  • Earnings growth
  • Moderate price to earnings ratio
  • Moderate price to assets ratio

It is generally possible to assess these things from the accounts of the company, the Shares tables section and perhaps a website with financial ratios and data like that assembled by Aspect Financial (free through www.ninemsn.com.au).

If you do not have the knowledge and expertise to assess these things yourself, you will need to rely on a licensed adviser. If you want to learn how to do it yourself, which I would encourage you to do, the best place to learn is the Securities Institute of Australia. Their Open Entry and Graduate Diploma courses give an excellent grounding and are the courses used to train the people who work in the industry.

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