Looking at company financials takes investing into a deeper level beyond the basic quotes. This removes the cosmetics covering the glamour behind a company's stock price. A stock increasing in value is caused by a huge surge of buy orders overwhelming the volume of sells, could be because the company has created a new technology that could replace a current mainstream device. If this is the only basis for owning such a stock, it's like buying a used car with great styling and glittering new coat of paint. The primary purpose of a car is for you to be able to go from point A to point B, looking only at a car's appearance couldn't accomplish this objective. It is the engine that should be checked if the coat of paint justifies your decision for acquiring it. A car's engine has to be reliable and in good working condition, otherwise it would leave you stranded in the shoulders because of a breakdown.
A surging price on a particular stock should be checked if the reason for such a move is pure speculation. For example company A has created a new technology that could match the power of internal combustion engines without the use of petroleum. This initial news could send the company's stock price into the roof, but is it supported by the company's ability financially to keep it afloat before another well financed business could take over the sector with a less superior technology? Technologies can only become standard and would survive for a long time if companies who created it can generate profits from it. Another reason is that an even better technology came out as a result of competition. Even a superior device could well be phased out with a less superior technology because it is cheaper to make, sells well and generates a healthy profit for the company who makes it.

Choosing a company that produces high tech computer chips over a company that makes noodles has the same effect. Its not because making computer chips sounds sexy and a lot of people needs one for their computers doesn't mean it is making more money than the noodle company. Whichever company has greater profit margins and less hindrance or liabilities in the way, the more cash it generates and its a clear path to an explosive growth mirrored by its stock price. This can be unearthed by looking at each company's balance sheet, income statement, cash flow statement and retained earnings statement.

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