The initial funding for a start-up company can be from venture capital or bank at beginning. As more money requires for expanding the business, following alternatives will be considered: issuing stocks, selling bonds, weighting tax benefit by setting oversea branches. All these fund raising and financial strategies only serve one common goal: check & balance debt and equity to ensure the company have enough capitals for future growth and keep cash flow consistent in the long term.
Two major items I always consider for the decision of the investment:
- What’s the rate of return in the mid term and long term? If it’s not more than 5% I would rather just purchase mutual funds to save the headache.
- How stable the business model is and will it survive from the competition and keep a steady growth rate?
After that I check the company's fundamental financial strength, such as: book value, profit margin, return on revenue, P/E, long term debt to Capital ratio, quarterly cash flow and total of liquidity asset to make sure it indeed is safe to invest. Up to this point if you just want to invest at corporate bond, the above study should be enough, which in general rate of return is about 6~8% for corporate bonds.
As try to target higher margin of return by investing in stocks, further stock technical chart analysis will be required. This in general is more complicated because it does require to identify the right purchase / sell price by breakdown the volume per price segment, accumulate of money flow, momentum, 50/200 days moving average, overall economy trend, figure out the resistance & support and be patient on waiting the opportunity comes. Options in general is not a bad strategy for hedging your own stocks.
Rule of thumb for financial management and how to make the decision is: borrow money as interest is low, then utilize it to get best of rate of returns. As leverage the investment, always think the worst about what may occur and ensure you are capable to take care of it.
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