Essential questions for investors and financiers are what and where to pay attention while making investments? What makes a firm most attention-grabbing among all firms? Investors should pay heed to determine what firms are worth to be focused on. After having experienced in the craft, I have come up with a preliminary framework – that tells an investor the essential things to look at when investing in a company.

Gross Margin

Gross margin tells you about the difference between revenue (profit) and cost of the product or service in percentage. This is crucial to be known because it allows the investor to invest in other areas required to take the product or service in the market, for instance, distribution and marketing of the product. The company with high gross margin is advised to prefer for investment.

Brand Strength

Always look at the uniqueness of the brand the company is offering. For example, it is better to invest in companies that make eco-friendly products because their popularity is on increase nowadays. Third-party reports and data, acquired media presence, and customer surveys are good means to evaluate the brand strength.

Chief Executive Officer

When you are investing in some company, you are going to empower its CEO. It is advised to make choice for a competent, diligent, wise, passionate, inventive, and understandable CEO. There is not any universal formula to evaluate someone but being the investor you should spend some time with CEO and ask questions to know if he understands his business well and has the passion for his products and services?

Exit Prospects

Many companies start businesses not for them but for the strategic acquirers to whom they sell their businesses later on. Before investment, you should know whether the company you are going to invest in, is interested in selling their business to some strategic acquirers or not. If they are interested in auctioning their business, you have to do some further investigations such as who are those likely “strategics”, what their acquirement strategies are, and how this business is going to be attractive to the strategic acquirers?

Recurring Revenue

Recurring revenue means the part of the profit that is expected to be continued in future. It provides a good growing base of profit on which the company will rely whilst concentrating on novel ways for the business to grow. It is vital because the expenditure of attaining a new consumer is approximately six times more than the expenditure of maintaining an existing consumer.

All these points are not inclusive but they should be considered before making an investment as a business as to avoid any tragedies and mishaps in the future.