Comparing Two Similar Business Investment Opportunities

Business investment opportunities can come in the form of under-valued public businesses (listed on a stock market) or private businesses that need funding (not listed on a stock exchange). Whatever the case, there are several things you need to analyze in order to determine if you are going to be able to realize a profit on your investment. The article below will cover some of the basic things to analyze before purchasing a share of a business.

Public Businesses

The first, and most popular, business investment is in the form of publicly listed companies. The reason why this is such a popular choice is simply because of the availability and relative ease of the investment. Today, with a few clicks on your computer, you can effectively purchase small portions of any public company you desire. But how can you make sure you are getting a good deal? There are several metrics you should look at to make sure that you are putting your capital in the best possible place. Many of these metrics are available online for your scrutiny. The first metric you will want to use to identify business investment opportunities in the public sector is the P/E ratio. Essentially, this is a ratio that measures the price of a stock over the earnings of the company. As a rule of thumb, a high P/E ratio indicates that a company is over-valued compared to its earnings. As such, you should compare the P/E ratios of several companies within the industry you are investing and try and pick one with a relatively low P/E ratio as this might represent the best deal. Another thing you should look at when choosing a public company to invest in is the Debt/Equity ratio. This measures a company’s ability to pay off its debts. If the ratio is high, the company runs a higher risk of defaulting on their debt and might present a riskier opportunity. However, in general, companies with high Debt/Equity ratios perform better than others during business cycle upswings and worse than others in downswings.

Private Businesses

While it may be generally easier to invest in a public business due to the availability of information, there are still some things you can research in order to invest in a potentially profitable private business. Since most private business investing occurs in the form of start-up capital, the main thing you, as an investor, want to know is when the company will break even. By asking management about revenue and profit projections, you can establish when the company will actually be profitable and when you can start to see a return on your investment. With private businesses, you also have the added benefit of meeting management face to face. This can be a huge asset to you because during your interview with management, you can gauge their enthusiasm and passion for the project. You should always make sure that the management of a company is extremely supportive of its ideas and that they are fervent and will persevere because entrepreneurship is a very difficult business.

To conclude, these are some of the quick methods you can use to make sure that your capital is well invested. By identifying healthy business investment opportunities, you can put your excess money to good use.

 

 

 

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