For investors, taking the plunge to invest money in another company can be very risky. Thankfully there are many ways to mitigate against this risk. This includes doing extensive online research into the company, and performing a credit check. This will reveal abundant information about their company structure and payment history. Why not look up free credit report at Duedil.com to begin your search?
The Check List for Risk
There are many readily available and free ways to access company information online. There isn’t anything stopping an investor from ascertaining a company’s financial suitability through their own research, without needing to employ an IFA or third party. Browsing reputable online finance portals will yield important information about prominent FTSE companies as well as enabling you to do homework on smaller enterprises.
The Annual Report
This can normally be provided by online financial services and databases. Before the eyes glaze over with all of the financial-ese, look specifically for three main financial components:
- Cash Flow Statement
- Balance Sheet
- Income Statement
These allow the potential investor to compare company growth over the past three years and see if the business has progressed at all. Investigate how they have reacted financially to a recent takeover or external economic pressures.
A potential investor can see from these documents, how the company is spending their cash and whether this takes the form of profits, sale of goods or new investment money going into the company. From the balance sheet, one can get a good idea of the current state of the company and where they are going in the future.
Comprehensive Credit Checks
The level of risk should determine how deep one needs to dig into a company’s background. For an investment with a smaller financial risk, less time should be spent on a credit check. Conversely, a company posing a significantly higher risk, deserves a comprehensive credit check.
Credit checks vary in detail and can consist of:
- Company and director checks: This includes credit risk scores for both directors and the principal shareholders.
- Investigative reports: This is primarily for large risk investments. A detailed and forensic investigation is conducted. This includes detailed financial information about company structure and operations.
Along with one’s own research, a credit check can be one of the most insightful and comprehensive ways of assessing risk when investing in an unknown company.