You must have constantly been advised to read market research reports to back your trading with concrete data. And you should, because the trading landscape is in a constant state of unrest and investors are constantly overwhelmed with data and business priorities.
Market research should be pushed to the top of your priority list for the following five key reasons.
1. Market Research gives a direct insight into the company’s proceedings
2. It keeps you focused: When used properly, market research reports should help you prioritize and maximize your time effectively.
3. It allows you to pursue the most lucrative growth opportunities: It’s not always clear what the right path to go is. Market research reports can help you weigh and quantify opportunities to prioritize those with the highest revenue potential.
4. It keeps you relevant and future-oriented: The market is ever evolving and this helps you chart trends and strategies long-term needs backed by adequate data.
5. It improves your decision-making capabilities and reduces your risk: If you have research to back up your marketing decisions, you can optimize your trading choices and minimize risk for failure.
Now that we know the benefits, let’s find out what to look for in a market research report
A company's annual report is the single most important docket to showcase it self to potential investors. Therefore, the market research reports might be glossy,hiding certain facts about the company. Unfortunately,many investors read annual reports but fail to read them effectively. So you need to learn how to read between the lines, overtime and decipher the actual condition of the company.
Oftentimes,the most essential components of the annual filing are the following items:
Business - a description of the company's operation
Selected Financial Data
Management's Discussion and Analysis of Financial Condition
How to Tackle
Different people read the market research reports differently. Some people even start at the back and make their way to the beginning. But as long as you understand and learn the essential points, there’s no harm in having your own routine.However,as put down by traditionalists here’s all that you need to look out for.
1. Understand the company behind the stock: Break the company into pieces and understand each component thoroughly: people, capital, inputs, and customers. Many components come together to make a successful business. As an investor, we should understand exactly where the business fits in an industry, and what it does to make money.
2. Examine and analyse the financial data available in the market research report. How has the company performed over a period of years? Has the balance sheet gotten stronger or weaker? Look at the cash flow statement and see if the business has been a generator of cash or a user of cash. Sometimes businesses report net income while remaining cash flow negative. Compare the income statement with the cash flow statement for any red flags. If you like what you see, read on and if not,move on to the next company.
3. Read about the risk factors: The risk factors might be very detailed sometimes -"our industry is highly fragmented with lots of competitors” or "our stock price may experience periods of volatility." While these are important risks to consider, they should not significantly reduce your liking for the business. However, if there is an unusual risk factor like a running law suitor the company generates a substantial portion of its revenues for one or two customers, you need to pay heed.
4. Focus on What You Know
Once you start investing, you have to learn every day to decipher and store information. And once you’ve set your platform strong, you’ll see how the information becomes fluid and you’ll avoid wasting unnecessary time on companies that do not meet your investment suitability.