What this is
A repeatable list of questions to walk through before any decision about a stock. Each step uses concepts the rest of this wiki defines.
This is research, not advice. What you do with the information is between you and a licensed professional in your jurisdiction.
1. What does the company actually do?
Read the company's website "About" page and the first section of its annual report (10-K in the US, annual report in India). You should be able to describe the business in two sentences without jargon. If you can't, you don't understand it yet.
2. Is the core business economic?
Look at three numbers, three years in a row:
- Revenue — is the top line growing?
- Gross margin — is the core product profitable?
- Operating margin — does that profit survive overhead?
A business with shrinking revenue or persistently negative operating margin needs a story for why that changes.
3. Is it growing?
Multi-year revenue growth and CAGR tell you whether the company is getting bigger. A 20% CAGR over five years is meaningful; a single hot quarter isn't.
4. How does it handle cash?
Real cash matters more than accounting profit eventually.
- Operating cash flow (OCF) — what cash the operations generated
- Capex — what cash the company spent on physical / intangible investment
- Free cash flow (FCF) — OCF minus capex; the cash left for everything else
A consistently positive and growing FCF is a healthy signal.
5. How is it priced?
Compare valuation multiples to peers in the same industry:
- P/E if the company is profitable
- P/S if it isn't yet
- EV/EBITDA as a cross-industry comparison
Multiples are only useful in context — compared to the company's own history and to its peers.
6. Is the balance sheet healthy?
- Debt-to-equity (D/E) — how much borrowing relative to shareholder capital
- Current ratio — can short-term bills be paid with short-term assets
A heavily indebted business is more fragile in a downturn; a debt-light one has flexibility.
7. What are the risks?
Read the "Risk Factors" section of the latest 10-K / annual report. Common categories:
- Customer concentration — is the company dependent on a few big buyers?
- Regulatory — could a rule change up-end the business?
- Competition — who else is in the market?
- Macro / cyclical — how does the business behave in a recession?
The risk-factors section is often boilerplate, but it's a checklist of what management itself has had to disclose.
8. Compare to peers
Take the same numbers from steps 2–6 and stack them next to two or three competitors. Companies look very different out of context; comparison is where you learn whether what you found is unusual or table stakes for the sector.
Closing
If you've worked through these eight steps, you've done the homework that distinguishes informed research from a hunch. What you decide to do with that homework is your call — and, for any actual decision, a conversation to have with a licensed professional in your jurisdiction.