In your investment career, you must have received stock tips and recommendations from your brokers, friends and family. Many a time, on asking the rationale behind the same, the person giving the recommendation would state the source of the tip as some ‘reliable’ source. Investors make decisions based on certain factual information. Subsequently, they make future assumptions based on and in support of those facts. As such, knowing how an industry and a company functions is very important. In addition, it is equally important for one to gain such information from proper and reliable sources.

In the second part of this series of articles on educating you on the basics of investing in stocks, we present here a basic idea of where you can go about looking for information on companies you wish to invest in.

Sources of information on companies

Offer documents: For a novice investor, it is always recommended that he should understand a sector before jumping into understanding the working of a particular company. One of the best sources for understanding a particular sector or industry is the offer document of the company, if one can get hold of one. Every company which gets listed first needs to file an offer document with the Securities and Exchange Board of India (SEBI). Apart from facts and figures about the company and its promoters, this document also contains information relating to the working of the industry (the company is involved in).

One may refer to this link to see the offer documents that have been issued over the past few years.

Annual reports: In case of a company for which you cannot get hold of the offer document given that the company has been listed on the stock exchanges for long, the annual report comes in handy. The director’s report and the management discussion and analysis (MD&A) sections of an annual report provide good information related to the company and industry. However, as compared to the offer document, this information is usually related to the past year and the management’s views on the outlook for the next year. It may be noted that one should not blindly take the management’s views into consideration as more often than not, it tends to paint a rosy picture. In the next article of this series, we shall take a deeper look into the constituents of an annual report.

BSE/NSE announcements and company press releases: We at Equitymaster have always believed in attaining information straight from a company rather than from a third party. Even if an investor gets some ‘inside information’ on a particular company, how factual and accurate it is, is something that cannot be determined. Apart from annual reports (which are published on an annual basis), it is the official company documents such as press releases, announcements and presentations which are released at regular intervals. The source for such information are the BSE or NSE Web sites (in their respective corporate announcement sections) and the company’s Web site.

Business dailies and other media: Newspapers and news channels are a great medium for gaining updates on companies. Interviews with managements provide good information on the company’s views, plans and strategies. However, information divulged from sources who do not wish to be named can be dicey. Reporters and journalists may get such news printed as they try to snoop around and find out stories relating to a particular company. But there have been a handful of cases wherein companies (on whom the news has been reported) have made announcements stating that the information is speculative or not true. As such, it would only be possible for an investor to judge the piece of news / information provided he is well acquainted with the company and its working.

Equitymaster database: You can also visit Equitymaster's database to view information relating to companies’ historical numbers and business profile. You will also be able to view reports on key sectors.

This article is authored by equitymaster.com, India’s leading independent equity research initiative.

Disclaimer: The opinions expressed by Equitymaster are theirs alone and do not reflect the opinions of The Hindu Business Line or any employee thereof. The Hindu Business Line is not responsible for the accuracy of any of the information within the article.

Related: Investing back to basics series

(This article was published on March 1, 2014)
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