Hello guys, today we are going to talk about an important which people rarely talks about. When people goes to the annual reports, they directly jumps into the financial statements which is not wrong but u can’t ignore the qualitative factors while choosing a share. So today we are going to discuss about those qualitative things which people rarely talks about.
1.Quality Of Auditors
First thing u have to check before goes to the financial statements of a company is whether the audit firm the company has choosen is good or not?, whether audit firm had done some mistakes in the past or not etc. Let’s take an real example of of it. During 2008, a big IT company collapsed in India and the name of that IT COMPANY company was satyam. There were some problematic situation in the financial statements of that company and that company also didn’t want to show it to the shareholders of that company. Pricewaterhouse coopers(PWC) was the auditor of that company at that time. That audit firm was also responsible during the scandal of that company because they can’t able to catch the fraud of that company. Apart from this satyam scandal, there are numerous allegations against this big audit firm in the past. So before jumping into the financial statements of a company, we should check the past track records of a audit firm past.
2. R&D expenditure
R and D expenditure is also known as Research and development expenditure. Here, it may seems to you that it is a kind of expenditure but in reality, it is a kind of long term investment for a company. The company spend money on R and D expenditure in order to improve their own products and services so that compete with their competitors. Normally industries like technology industry, automotive industry etc spend more money R AND D as these kind of industries requires new innovations in their products frequently. These industries always have to think something new. So whenever u are investing in such industries, always check how much amount they have spent on R and D on each and every year. It may not be the part of financial statements or corporate governance of a company, but still it has its own significance.
3.Diversified business
If a company is engaged in more than one business, that’s called diversified business. Let me give you an example like suppose u have written maths in your history notebook. Ask yourself does it look good or can it be attractive? It may confuse your teacher as u have written history related topic in ur mil maths notebook. U can see this same scenario while investing ur money in a company. If a company is engaged in more than one business, then it is also known as conglomerate business. If a company has conglomerate business, then it may not help u in financial analysis and it also confuse the shareholders also alot. Even if a company has conglomerate business, the company should demerge the businesses so that shareholders can understand from which business the company gets more benefits. That’s the reason why I avoid to make investment in a company conglomerate business.
4. Business expansion
It is the most important thing to check before putting your money in a company. The more a company expands its business, the more it will grow. Business expansion refers to open your business in multiple locations. If u are putting ur money in an technology (IT) stock, u should check this first. It’s common for an IT company having multiple business location outside their own countries through their subsidiaries. You can use this technique while putting in your money any other stock also.
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