Investment guidelines based on future growth indicators
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The stock market is cited to be one of the greatest tools ever invented for building wealth. The relative small size of the ideal portfolio, consisting of 10 to 12 shares, reiterates the fact that share selection is absolutely crucial to portfolio success and ultimately the creation of personal financial independence. The main objective of this study is to research, identify and develop investment guidelines based on possible future growth indicators of organisations listed on the JSE. Various possible growth indicators are identified and are statistically related to typical growth metrics, namely sales turnover, sales turnover growth, average share price and average share price growth. These possible growth indicators, identified in Chapter 2 are: • Operating profit margin. • Capital requirements ratio. • Return on equity (ROE). • Retention ratio. • Financial leverage. • Net profit margin. • Return on assets (ROA). • Total asset turnover. • Earnings per share (EPS). • Cash flow per share. • Inventory; and • Dividend yield. This study finds cash flow per share, inventory and dividend yield to be the top 3 future growth indicators, based on extensive backward stepwise multiple regression modelling, covered in Chapter 3. The private investor can utilize these indicators to assist in identifying feasible investment opportunities, thereby moving towards the ultimate personal goal of financial independence.