Before buying shares in any ASX company, doing basic research on the business helps you understand what you own, the risks involved, and whether the price seems reasonable. This guide covers the key documents to read, metrics to check, and questions to ask before buying — in plain English.
Step 1 — Understand the Business
Before looking at any numbers, answer these questions:
- What does this company actually do? Where does it earn revenue?
- Who are its customers? Who are its competitors?
- Does it have a competitive advantage (pricing power, network effects, proprietary technology, switching costs)?
- Is the industry growing, stable, or declining?
- Is the business simple enough to understand?
Warren Buffett famously invests only in businesses he can explain in simple terms. If you cannot understand how a company makes money, understanding whether it is cheap or expensive is very difficult.
Step 2 — Read the Company’s Results Announcements
Every ASX-listed company is required to release half-year and full-year financial results to the ASX. These are free and publicly available at asx.com.au → the company’s page → Announcements.
Key documents:
- Results announcement / investor presentation — usually a slide deck; start here for an overview
- Appendix 4D or 4E — the statutory financial results lodged with the ASX
- Annual report — detailed financial statements plus management commentary
Look for:
- Revenue and earnings trend (growing, flat, declining?)
- Comments from management on outlook
- Key risks highlighted by management
Step 3 — Check the Key Financial Metrics
| Metric | What to look at |
|---|---|
| Revenue growth | Is revenue growing? At what rate? |
| EPS (earnings per share) | Is EPS growing? Consistent or volatile? |
| Return on equity (ROE) | Is the company profitable relative to shareholder equity? 15%+ is generally strong |
| Gross margin | Is the margin stable or improving? Falling margins can signal competitive pressure |
| Debt level (net debt/EBITDA) | High debt increases risk; under 2× EBITDA is generally manageable |
| Dividend payout ratio | Is the dividend sustainable relative to earnings? |
| Cash flow from operations | Is the company generating real cash, not just accounting profits? |
For mining companies, also check: commodity prices, production costs (C1/AISC), and reserves. For REITs, also check: net tangible assets (NTA), funds from operations (FFO), occupancy rates.
Step 4 — Assess Valuation
P/E ratio — compare to the sector average and the company’s own historical P/E. Is it trading at a premium or discount to history? Why?
Price-to-book (P/B) — for financial companies, compare share price to net asset value. CBA historically trades at a significant premium to book value.
Dividend yield — for income investors, is the yield sustainable and competitive with alternatives?
EV/EBITDA — enterprise value (market cap + net debt) divided by EBITDA. Useful for capital-intensive businesses.
Step 5 — Assess Management Quality
- How long has the CEO been in place?
- Does management have a track record of delivering on their stated goals?
- Are executives aligned with shareholders (do they own significant shares)?
- How has management allocated capital historically — good acquisitions, or poor ones?
- Read the “risk factors” section of the annual report to understand what management sees as the key risks
Step 6 — Check the Ownership Structure
- Who are the major shareholders? Institutional investors? Founder-led?
- Have insiders been buying or selling? (Insider transactions are published on the ASX)
- Is there a significant short position on the stock? (High short interest can indicate concerns)
Step 7 — Understand the Risks
Every company has risks. Before buying:
- What would cause this company’s earnings to fall significantly?
- What external factors (interest rates, commodity prices, regulation) could hurt the business?
- What is the debt situation if revenues fall?
Where to Find ASX Company Information
| Source | What it provides |
|---|---|
| asx.com.au | All ASX company announcements (free) |
| Annual reports | Detailed financials, management commentary, risks |
| Morningstar | Financial data, analyst estimates (some free, some paid) |
| Simply Wall St | Visual financial health summaries |
| CommSec / SelfWealth / broker platforms | Charts, financial summaries, earnings data |
| ASIC company registry | Director details, charges, legal filings |
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Frequently Asked Questions
How long does it take to research an ASX company? A basic review — reading the most recent results presentation, checking key metrics, and forming a view on the business — can be done in 2–4 hours. A thorough analysis of a complex company can take much longer. For most retail investors, focusing on a small number of well-understood companies is more effective than spreading research across many.
Do I need to be an accountant to analyse shares? No. While understanding basic financial statements helps, you do not need accounting qualifications to do useful company research. Many successful long-term investors focus primarily on understanding the business, its competitive position, and management quality — rather than deep accounting analysis.
Is fundamental analysis better than technical analysis (chart reading)? These serve different purposes. Fundamental analysis (business quality, earnings, valuation) is the basis for long-term investment decisions. Technical analysis (chart patterns, momentum) is more relevant to short-term trading. For buy-and-hold investors, fundamental analysis is the more relevant framework, though understanding a price chart as a historical record remains useful.
This article provides general financial information only. For advice tailored to your situation, speak with a licensed financial adviser. You can find one through the ASIC financial advisers register or MoneySmart.