Whether you are a short term or a long term investor, smart investors should always consider a company's sustainability.  Sustainability is a company's ability to survive a major crisis or a bad economic down turn.  Companies having sustainable growth and earnings are more likely to survive a major crisis or a major economic downturn.  Investors who invest in such companies are more likely to be more comfortable with their investments during bad times than investors that are not investing in sustainable companies. 

Investors looking for sustainable companies are more likely to look at the following factors:

•  IS THE COMPANY EARNING? (REVENUE GROWTH)
  • Sales and Net Income - This is the top line and the bottomline.  A flat to increasing Sales and Net Income is good, since this means that the company is maintaining what its sales (Flat) or the company is growing (increasing over time).
  • Earnings Per Share Vs Dividend Payout Policy - A companies earning per share should not be lower than the Dividend it is paying out.  A company can only payout dividends only for a period of time if ther Earnings Per Share is lower than the Dividend payout per share.  Companies are darining their cahs If the Dividend payout is higher than the earning per share.  Question companies that are paying out dividends higher than what they are earning. 
• ABILITY TO PAY DEBT? Capitalization is how a company funds it's operation.  The higher the debt the company has the higher the risk it takes.  Investors usually shy away from companies that are highly leverage thus making it harder for the companies to look for capital funding.
  • Debt to Equity Ratio (Leverage) - This is the ratio on how much debt and how much equity it is funding it's operation.  Higher debt increases risk.
  • Beta (Risk) is a risk.  Companies having beta higher than 1 tend to be more risky than companies lower than 1.  Also consider the beta for the industry as a whole.
• VALUATION:  IS THE STOCK PRICE OVER PRICE? Price Earnings Ratio - A good price earning ration will range between 10 to 30 multiple.  Some may even consider as high as 40 to 50.
• Market Outlook - Market Outlook looks at the demand and supply of the industry the company is in.  Are all companies in the industry hurting?  If, yes who is likely to survive this downturn?  Answer is the companies whose demand is higher that the supply.  Is their too much provider of service than what people are demading.  If this is the case, competition and price wars will set in thus hurting the ability to earn and grow.

These are just some of the few factors an investor can use to evaluate how sustainable their portfolios are.  Sustainable companies have higher chances to rebound after a market down turn or a major crisis.  Sustainability gives an investor a chance to live and earn another day!

CHEERS!!!!

From the Research Desk of iMOBHQ.COM...