With that thought in mind, here’s a list of 8 company attributes that could help you strike it rich.
Achieving high rates of revenue growth can be difficult, but it’s an absolutely critical ambition for long-term market success.
To do this, firms must continually innovate and find new ways to attract customers. They also need to invest in marketing and sales to keep up with the competition.
Moreover, a company should grow its revenue organically, as this is a sign of a healthy and sustainable business. Indeed, a firm that can’t grow its revenues organically is often one that’s in decline or has poor management, and may resort to acquisitions or external funding to maintain the illusion of continued development.
There are many ways to achieve organic growth. Some of the most common ones to look out for include a company’s ability to expand into new markets, as well as its willingness to bring out new products and services.
One of the best things a company can do is reinvest its profits back into its business.
Indeed, this is why the ability to generate healthy profit margins is also so important: it demonstrates a company’s proficiency in turning top-line revenue into bottom-line earnings. In addition, it enables the firm to purchase new equipment, hire new employees, and open up new locations when the opportunity arises.
Furthermore, a healthy margin is a good indicator of a well-run business, and shows a firm has the resources to continue growing.
In fact, without high margins, a business may find itself in financial trouble very quickly, jeopardizing its long-term future.
Keeping debt levels low is essential for a business because it means it can more likely weather economic storms and continue to function normally. On top of that, taking on too much debt can also make a company less flexible, exposing it to risk if earnings fall or interest rates suddenly rise.
Determining what constitutes a reasonable level of debt depends on a firm’s present situation and the industry that it operates in.
For instance, capital-intensive businesses like those in the Energy sector usually tolerate higher levels of debt than an asset-light company such as a software development firm.
You can calculate how financially stable a business is by using the debt ratio formula. The debt ratio formula divides a company’s total liabilities by its shareholder equity. The resulting number gives an indication to what degree the business is relying on its debt to keep on going.
For example, a high figure suggests that a company could be using its debt to finance its growth. However, a lower number isn’t always better – investors might see the decision not to use debt as a missed opportunity to grow or to scale the business.
Companies need access to ready cash to stay afloat. In fact, even if revenue levels are high, a business will suffer if it doesn’t have the capacity to meet its short-term obligations.
Indeed, if a company doesn’t have enough liquid assets, it may not be able to pay its bills or fund its payroll. This can lead to financial difficulties and even bankruptcy.
Liquidity is often defined as the ease with which a business can convert its assets or securities into immediate cash without impacting its market price.
Having adequate liquidity doesn’t just provide a cushion for unexpected expenses or cash flow problems – it also shows investors that the company is well-managed and has a good chance of success. It’s therefore wise to apply either the acid-test ratio or the cash ratio to assess if a firm is sufficiently liquid enough.
Understanding how wider trends in society affect a company’s business is also important, as it allows investors to anticipate and react to changes in the market as a whole.
These secular trends transcend specific business cycles and precipitate over longer periods of time. They can be social, economic, political or technological in nature and have the ability to create entirely new industries along the way.
It’s crucial to understand that not all companies experience secular growth. In fact, many companies experience cyclical growth instead, which means their businesses go through periods of good times and bad.
While it’s possible to make money off of companies with cyclical growth patterns, it’s much harder to predict when these periods will occur. As such, investors might be better off sticking with companies that track secular growth over the long term.
Relative Immunity To Financial Crashes
Immunity to economic downturns can be a vital attribute for companies because it allows them to maintain profitability during difficult and trying events.
Businesses can achieve immunity in a variety of ways, such as diversifying revenue sources, building up cash reserves, and reducing expenses in whatever manner they can.
While it’s not always possible to be completely immune to an economic downturn, just having some sort of immunity can protect a company from serious financial damage.
A Wide Moat
Cultivating a robust business moat can help companies gain a competitive advantage over their rivals, setting-up a barrier to entry for new businesses in the space.
A moat can take the form of intellectual property, such as patents or proprietary technology, or it can entail having a strong brand with a good reputation among customers.
Businesses that possess a wide moat usually see higher profits than their competitors, which makes them a good thing for investors to look out for when choosing which stock to pick.
Choosing a company that pays a reliable dividend is a good strategy for investors to pursue. It provides a way to receive income from your initial layout while also retaining the possibility of capital appreciation further down the line.
In addition, dividend-paying companies tend to be more mature and stable than non-dividend-paying ones, which offers some diversification for a portfolio that’s higher-risk or growth stock-oriented.
However, before investing in a company that pays a dividend, research the company to make sure it is a good fit for your investment goals.