When it comes to stock investment, it is important to do your research and evaluate the stability of the company. While volatility is inevitable in the stock market, it’s important to find companies that are strong and financially secure in order to minimize the risk of losing your capital. Here is a list of the best, financially stable companies to buy stocks from.
Financial Rating Agencies
The first step when you’re looking for a financially stable company to invest in is to review their rating from one of the major financial rating agencies. These agencies provide objective ratings of a company’s ability to meet obligations, such as debt payments and dividend payments. The three most trusted financial rating agencies are:
• Standard and Poor’s
• Moody’s
• Fitch
While the results of their ratings vary between agencies, they all provide an objective view of a company’s strength and stability. The higher the rating, the more financially secure and reliable the company is likely to be.
Debt Ratios
Debt ratios are another effective way to evaluate a company’s financial strength and stability. Debt ratios measure the amount of debt a company has relative to its total assets. The most common debt ratio is the debt-to-equity ratio which measures a company’s total debt divided by its shareholder’s equity. Companies with low debt-to-equity ratios, such as less than 1.0, are considered to be financially secure and less likely to face financial difficulties.
Other debt ratios include the debt-to-asset ratio, which measures a company’s total debt divided by its total assets. This ratio measures how much a company relies on debt financing relative to its total asset value. Another important ratio is the debt-service coverage ratio. This ratio measures a company’s ability to cover its interest and principal payments due on loans. Companies with a debt-service coverage ratio of greater than 1.0 are considered financially secure.
Cash Flow
When evaluating the financial stability of a company, it’s important to consider their cash flows. Companies with positive cash flows are more likely to be financially secure because they generate enough money to meet their operating expenses, pay off debt, and reinvest back into the business. When evaluating the cash flows of a company, you should pay attention to the cash flow from operating activities, investing activities, and financing activities. These three categories reveal how a company makes its money (operating activities), uses its money (investing activities), and finances its operations (financing activities).
The Best Financially Stable Companies
After considering a company’s financial ratings, debt ratios, and cash flows, here are some of the best and most financially secure companies to buy stocks from:
• Microsoft
• Apple
• Amazon
• Alphabet (Google)
• JPMorgan Chase
• AT&T
• Walmart
• Berkshire Hathaway
• Visa
• Johnson & Johnson
When choosing a financially secure company to invest in, it is important to research and evaluate their financial stability. From reviewing their ratings from financial rating agencies to inspecting their debt ratios and cash flows, taking the time to do your due diligence can help you make a better investment decision. The companies listed above have all developed a reputation for being reliable and secure, and they offer some of the best investments in the market.
