My Finances

First posted: May 25, 2010

As an investor, owning corporate stock can contribute to the growth of your capital. Have you ever wondered what makes its value go up and down over time? Being an expert in securities, your Desjardins investment advisor can help you get a handle on the various factors that influence stock prices.

Internal factors within companies
The following elements can be used to evaluate a company's ability to position itself well with respect to markets and potential investors. They also serve as reference points in evaluating the balance between the investor's risk tolerance level and the potential gain that can be expected.

• Nature, frequency and scale of profits reported
• Characteristics of share issues
• Composition and state of liquid assets
• Growth outlook
• Management quality and under-riding philosophy
• Policy for paying out dividends to shareholders

External factors affecting companies
Other variables can be used to see where a company stands within its own industry sector and with respect to changes in economic conditions, be it at the national or international level.

• Economic cycles (duration, frequency, intensity)
• Government policies (investment policies, taxation)
• Changes in the company's industry sector (cyclical, defensive or speculative nature of the sector)
• Changes in interest and inflation rates

The importance of financial ratios
The following required reference points can be used to judge the viability of a company's operations:

• Liquidity ratios, which measure a company's ability to maintain working capital and meet its short-term financial obligations


• Debt ratios, which measure the scale of short-, medium- and long-term financial obligations


• Profitability ratios (return on investment, return on assets and return on capital)


• Valuation ratios, which are essential references, especially from the standpoint of selling off a business (profit history, dividends paid out, book value)

Your Desjardins Securities investment advisor* remains your best ally in helping you make informed decisions to grow your investments.

* Securities are offered by investment advisors with Desjardins Securities, a member of the Canadian Investor Protection Fund (CIPF).