Business is all about profits.
Investing in the stock market is most intelligent when it is most businesslike. This is advocated by Benjamin Graham, the father of value investing.
Business is all about profits. Therefore, earnings are the first thing you look at when you analyze a company. When you look at earnings, look at earnings per share (EPS) instead of the total amount.
When I look at earnings, two things come to my mind. One is whether these earnings are sustainable, and two, whether they will have further growth.
Whether these earnings are sustainable or not, depend to a great extend on the core business of the company, the integrity of the management and the competency of the CEO. If you are not convinced that earnings are sustainable and growing, avoid the stock.
Dividend Policy
A company should always take care of its minority shareholders. It should have a good dividend policy. Paying 30 to 50% of its earnings as dividends is to me a good dividend policy. The value of a stock depends on the amount of dividend it pays.
Major Shareholders
A strong major shareholder is very useful. It gives added advantages and protection to a company.
Barrier of Entry
Two companies that have the strongest barrier of entry are: Genting and Bursa. Why? Because even if you have money, you cannot go into this type of business, simply because you can't get a license for it.
Banks also have a strong barrier of entry because bank licenses are limited. Plantations, construction and Properties do not have such a strong barrier. This means that if you have money you can easily go into such businesses. A strong barrier of entry prevents competition from becoming too intense and is therefore valuable.
Borrowings
Heavy borrowings can cause bankruptcy. In fact all companies that go bust have heavy debts which they cannot repay. So avoid companies with high debts.
The Balance Sheet
The balance sheet shows you what the company has and what it owes others. You have to study this carefully. I like to look at the current assets, and compare them to its current liabilities. The bigger the current ratio is the better. A current ratio of less than one is a red flag.
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