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Research a stock. Once I've thoroughly researched the industry using the steps outlined in the Research an Industry page, I move on to a more detailed set of steps to research the stock(s) I've targeted. I like to use stock screeners, but since most stock screeners only allow you to screen for a limited amount of information, they provide only a partial view of what is really going on with a stock. Here are some steps that I typically follow in researching a stock.

Once I've reached the point on the Research an Industry page where I've narrowed down my list to 2 or 3 stocks, I typically follow these steps:

1. Read about the company and its closest competitors to get an idea of its competitive position.
Use a variety of sources. Some of my favorite places to start are Google Finance, Yahoo Finance, SeekingAlpha.com and Fool.com.

2. Check some basic financial ratios and financial numbers to make sure the company's financials are healthy. I usually check the market cap, price/sales, price/book, PE ratio, PEG ratio, current ratio, return on assets, return on equity, operating margin, profit margin, quarterly revenue growth, cash flow, short ratio, insider holding percentage, and dividend payout.

3. Examine the company's balance sheet and compare it to previous balance sheets.

Understanding and reviewing the company's balance sheet is critically important. The balance sheet is basically a snapshot of a company's financial position. If you are not sure how to read a balance sheet, check out this article on how to read a balance sheet. There are a number of things to look for when examining at the balance sheet. What I do is make sure that the ratio of the company's assets to liabilities is increasing as time goes by. Also, if I see that total liabilities are higher than total assets, I typically steer clear of the stock, especially if the ratio of assets to liabilities has been decreasing. I make very few exceptions to this rule. Here's another great article by investopedia that explains the balance sheet.

4. Examine the company's income statement The income statement shows how much revenue a company made during a period of time, and ultimately how that money translates into net income. To gain perspective, compare the most recent net income period to previous periods. Notice any trends. What I typically look for is accelerating revenue and net income.

5. Examine the company's cash flow statement. The cash flow statement shows the net change in a company's cash position over a specified time period. It starts with net income and ends with showing how much cash is left after all cash flows have been accounted for. I generally look for positive and accelerating cash flow.

6. Read the company's annual report. This is usually found somewhere on the company's website. It is very important to read the annual report because every company is required to disclose important information on the annual report.

7. Listen to the company's most recent conference call. This is also usually saved on the company's website. I like to listen to conference calls because I think it is a good way to uncover qualitative information that isn't detailed in any of the company's reports or financial statements.

8. Research the company's closest competitor(s) using the method outlined above. This may seem tedious, but is very important because you can gain a much better perspective on the company's competitive position by doing this. If you are picking a good company with a formidable competitive advantage, you will probably not need to research very many other companies. When doing this research, you may find that a competitor is in a better position.