Today, we are up to number 10 in our series about the 10 Things To Look For When Buying A Stock. Just because this is the last one on or list does not mean that it is any less important than the other items on the list. As a matter of fact, trust is one of the most important factors to consider when investing.Trust is not only essential to personal relationships but to investing decisions as well. A company should not receive one dime of your money if you can’t trust their financial statements. So, how do you find companies that you can trust with your money?
Look for companies with a history of consistent operating performance. Companies that have a minimum of 5 years of consistent operating results. You want companies that have integrity and are not plagued by scandals. Stay away from companies that have to restate earnings or have paid fines to the SEC for misleading investors. Insider trading and financial malfeasance should not be tolerated. Companies that have had accounting scandals or have fudged their numbers in the past are not worth your time.
A recent example of this is Dell Inc. Dell has had numerous accounting scandals and fraud charges levied against the company over the years. The company continually pays hundreds of millions of dollars in fines to settle these cases. How can an investor have any confidence in the earnings numbers that Dell reports? The answer is that they cannot.
Bed Bath & Beyond is the exact opposite of Dell Inc. The company has a history of being transparent with its financial transactions. The company has been squeaky clean in regards to all of its financial dealings.
Investors that want to know what companies are the best at handling their financial business should take a look at Audit Integrity’s reports. Audit Integrity does a good job of ranking companies based on their transparency. The company assesses the quality of corporate accounting and management practices. According to Forbes magazine, Audit Integrity’s rankings signaled problems at both AIG and Lehman Brothers.
This will help you steer clear of companies facing potential lawsuits or worse yet insolvency. It’s hard enough just trying to trust the ethical companies. Stay away from the unethical ones.
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