9 Major Questions Investors Should Ask Management (2022)

Participating in an investor conference call can provide you with a sense of comfort in your investment decision. Alternatively, it may encourage you to walk away and drop the stock from your portfolio. There are many benefits to having a one-on-one conversation with those at the head of the corporations you invest in. For example, you can receive information without a middle man, sense whether management's voice is unsteady or suspicious, and build a rapport with the managers of the company.

Key Takeaways

  • These questions will help you determine whether you want to put your faith and money into a target company.
  • A question that prompts the manager to speak about where they see sales trending in the next 12 to 24 months will give investors a good glimpse of the opportunities and the risks that could present themselves over both the short-term and the intermediate-term.
  • A question that prompts the manager to speak about the best use for cash on the company's balance sheet may indicate whether the company is planning a merger or acquisition, if it will use its cash to buy back common shares in the open market, or if it feels it's better off saving cash for future expansion.
  • A question that prompts the manager to speak about the emerging competitors in the industry in which the company operates will let the investor know who the competition is, and/or who it may be in the future.
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In the past, earnings conference calls were only made available toanalysts andinstitutional investors. However, thanks to the accessibility of the Internet, almost all public companies allowindividual investorsto listen in on the call. Here are nine questions for management that will have the CEO doing more than delivering the company line. These questions will help you determine whether you want to put your faith and money into a target company.

Where Do You See Sales Trending in the Next 12 to 24 Months?

This time frame will give the investor a good glimpse of the opportunities and the risks that could present themselves over both the short-term and the intermediate-term.

Because this is an open-ended question—and not a simple "yes or no" or one-word answer question—it allows the manager to give a broad response. Perhaps they will touch on a variety of issues that could prove valuable to the investor's decision-making process.

What Are the Risks Associated with the Sourcing of Raw Materials or Holding the Line on Costs of Services?

This question allows the manager to potentially touch on a variety of factors that could have an adverse impact on raw material or labor costs related to sourcing. The manager's response may give the investor some valuable insight into the future direction of gross margins, which in turn will give some insight into future potential earnings.

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Truly savvy investors will compare the answer to this question with the earnings projections that the sell-side is making.

What Is the Best Use for the Cash on the Company's Balance Sheet? How Does the Company Plan to Raise Capital in Order to Fund Future Growth?

The manager's answer to these questions may indicate whether the company is planning a merger or acquisition, if it will use its cash to buy back common shares in the open market, or if it feels it's better off saving cash for future expansion. This information is particularly valuable because it may alert the investor to potential catalysts that could drive the stock higher (or to potential risks that could depress it).

If you're asking about future growth, you should be looking for a response that would indicate that the company is taking steps to improve its place in the market. If the company isn't growing and is losing cash, then you know what kind of performance to expect.

Who Are the Emerging Competitors in the Industry in Which You Operate?

This question will let the investor know who the competition is, and/or who it may be in the future. It may also alert the investor to new products/services that may be coming to the market, which could impact the company at some point down the road. Consequently, management may also disclose plans on how it plans to deal with these emerging competitors.

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What Part of the Business Is Giving You the Most Trouble Now?

The answer will identify potential weaknesses in the company's organization and provide some insight into future earnings. For example, if the manager indicates that Division XYZ was forced to pay more in the current quarter for its raw materials because of a supply problem (and the investor knows that Division XYZ makes up 40% of the company's total revenues), the investor could assume with reasonable confidence that there may be a near-term earnings shortfall.

Keep in mind that identifying problem areas are just one part of the equation. It is far more important to hear what the company plans to do to resolve the problem area(s) in both the short and long term.

How Close Is Wall Street in Terms of Estimating Your Company's Earnings Results?

With this question, the investor is asking if the company will meet consensus estimates. Think about it. If the manager answers that "The Wall Street analysts typically underestimate us,"the implication is that they'll keep on doing that and there could be some upside to future earnings.

Conversely, if the manager comments that "The analysts are sometimes a little too optimistic,"the implication is that there could be an earnings shortfall at some point in the future.

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What Part of the Business Do You Think Is Being Ignored That Has More Upside Potential Than Wall Street Is Giving It?

This question will also lead the manager into revealing more about the company's positive points. It will probably inspire a long answer from the manager, who will undoubtedly love talking about the positive aspects of the company that aren't being represented in the media.

The manager's answer will also likely reveal the source of potential upside earnings surprises, which is important because it may potentially allow the investor to buy into the stock before the impact (of the earnings) is actually reflected in the share price.

Do You Have Any Plans to Advance or Promote the Stock?

Knowing if and when management plans to promote the stock to individual and/or institutional investors is invaluable because the savvy investor (assuming they like the company's fundamentals) can buy into the stock ahead of what could be a large amount of buying pressure. Individuals looking to time entry or an exit point in the stock may also find this particular question to be valuable.

What Catalysts Will Affect the Stock Going Forward?

Again, this is an open-ended question, so the manager is likely to give the investor a wealth of information. In some cases, the manager might highlight the potential for new analyst coverage, the possibility that the company may have a stronger year than most are expecting, or plans to promote the stock. Conversely, the manager might yield information about negative catalysts that could adversely impact the share price.

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The Bottom Line

Having one-on-one conversations with managers is a terrific opportunity to garner timely, valuable information. Remember, all of the information you receive from these managers is readily available elsewhere for the public to find, but the information that you glean from hearing how they answer the questions according to tone and speed will say more than any earnings report could.

So go out there and be proactive. Call your prospective investment's company managers andparticipate in conference calls. And don't forget to ask plenty of questions! You'll be happy you did.

FAQs

What questions should an investor ask? ›

10 Common Questions Investors Ask Founders
  • Why is now the right time to start the company? ...
  • What trends do you see in the market? ...
  • Why is the team uniquely capable of executing the plan? ...
  • Why do users care about your product? ...
  • How did you come up with your business idea? ...
  • Which competitor is doing the best job and why?
Jan 28, 2022

What are the questions investors ask before investing? ›

Questions To Ask Before Investing In A Business Opportunity
  • How much money do you have to invest?
  • How much money can you afford to lose?
  • Will you operate alone or will you have partners?
  • Will you need financing? How will you obtain it?
  • Do you have savings or income to live on while you start your new business?

What are the 5 questions to ask before you invest? ›

5 questions to ask before you invest
  • Am I comfortable with the level of risk? Can I afford to lose my money? ...
  • Do I understand the investment and could I get my money out easily? ...
  • Are my investments regulated? ...
  • Am I protected if the investment provider or my adviser goes out of business? ...
  • Should I get financial advice?

What questions should I ask a fund manager? ›

Here are five questions you need to ask fund managers.
  • What's your experience and how well is that experience documented? ...
  • How would you describe your investment strategy? ...
  • What are some investments you've removed from your portfolio, and why? ...
  • How often do you report to clients? ...
  • When has your process failed?

What does an investor want to see? ›

More than anything, investors want to see a return on their investment. Investors are in the business of putting money into growing businesses so they can make money. If you can demonstrate that your business will make them money, then you're 90% there.

What do investors ask in a pitch? ›

Some good follow-up questions:

How did you come up with this idea? Why did you decide to (some marketing, product, or financial decision in the pitch)? What about (some objection related to market, competition, financial plans)? Who are your investors so far?

What do early stage investors look for? ›

First and foremost, investors want to see a solid, well thought out, convincing and complete business plan. They want to know they you're not winging it, not overly optimistic, and at least mostly realistic about the future of your business.

What are 3 questions about the stock market? ›

Indian Stock Market FAQs
  • Can I trade when markets are closed or shut down? ...
  • How many Sectors are there to invest in Stock Market? ...
  • Is there any time for buying shares or doing a trade? ...
  • Is it safe to invest in Unlisted Stocks as a beginner? ...
  • How to Find Undervalued Stocks?
Apr 23, 2021

How do investors evaluate early stage? ›

Using the DCF approach an investor values the startup based on the forecasted cash flows the business is likely to generate in the future. Then, using an expected rate of return on investment the investor calculates how much that cash flow is worth.

What should you consider before investing in a company? ›

10 Important Questions To Consider Before Investing In A Company
  • Do I understand the business? Can I explain, simply, what the business does? Do I understand how it makes money? ...
  • Can I (approximately) estimate the key financial characteristics 10 years out? How much bigger or smaller will the addressable market be?
Dec 3, 2019

What should I ask my financial advisor every year? ›

  • 5 key questions to ask at annual review time. Is your investment strategy on track? ...
  • Is my investment strategy on track? ...
  • Am I saving tax-efficiently? ...
  • Am I protecting my income? ...
  • Am I preserving my assets? ...
  • How does my financial plan affect my family? ...
  • Take a long-term view for your family.
Jan 10, 2022

How do you evaluate a fund manager? ›

Here are some attributes based on which investors should evaluate a fund manager:
  1. INVESTMENT STYLE. How does the manager handle his portfolio? ...
  2. INVESTING TIME HORIZON. Who would you prefer: a manager who churns the portfolio frequently or one who stays invested for the long term? ...
  3. TRACK RECORD.

What is the most important thing to know about your mutual fund managers? ›

One of the most important aspects of investing in mutual funds is the management of the portfolio of the stocks and bonds and any other asset class. The fund is managed either actively or passively by a fund manager. This has a considerable impact on the performance of the fund and your portfolio over time.

What does an investor want in return? ›

Most investors take a percentage of ownership in your company in exchange for providing capital. Angel investors typically want from 20 to 25 percent return on the money they invest in your company.

What investors look for in founders? ›

Other important qualities VCs look for in founders are intellectual integrity and self-awareness. As an investor, he has learned that “people who are very introspective, understand their strengths and weaknesses,” tend to have a greater chance of leading and later scaling a successful startup.

What makes a company attractive to investors? ›

Profitable. A great company generates a profit by charging more than enough to cover its costs. Very often, a wide economic moat allows the business to 1) charge a premium for its products or services; 2) sell a high volume to customers; 3) control its costs and operate efficiently; or 4) do a combination of these.

What kind of questions do investors ask startups? ›

15 Key Questions Venture Capitalists Will Ask Before Investing In Your Startup
  • Is There a Great Management Team? ...
  • Is the Market Opportunity Big? ...
  • What Positive Early Traction Has the Company Achieved? ...
  • Are the Founders Passionate and Determined? ...
  • Do the Founders Understand the Financials and Key Metrics of Their Business?
Apr 13, 2019

What should you not say to an investor? ›

Yet, all that can be blown if you make the following mistakes.
  • You Need to Sign This NDA. ...
  • We Have No Competition. ...
  • We Don't Really Know Our Unique Selling Proposition Yet. ...
  • We Have No Weaknesses. ...
  • This is Such a Sure Thing it Can't Fail. ...
  • I Don't Have an Exit Strategy Yet. ...
  • We Really Need the Money.
Feb 23, 2019

What question should you be asking in order to make an investment decision? ›

Ask yourself:
  • How does the investment work? ...
  • What are your goals? ...
  • What are the risks of this investment? ...
  • How much do you expect to earn on this investment? ...
  • How long do you plan to invest. ...
  • What are the costs to buy, hold and sell the investment? ...
  • What other investments do you have already?
May 31, 2021

How do I convince an investor to invest in my business? ›

Here, you'll find 12 helpful tips for attracting and engaging the investment your new business needs.
  1. Work on extending your network. ...
  2. Show evidence. ...
  3. Personalize your pitch. ...
  4. Choose co-founders wisely. ...
  5. Refine your business first. ...
  6. Build a strong brand online. ...
  7. Think outside the box when it comes to investors.
Jul 26, 2021

What should I offer an investor? ›

With most startups, the general rule is to offer approximately 20-25% of your business earnings to an investor. That's assuming that the investor is pitching in when the business is still new.

What are stock questions? ›

By asking these 10 questions, you can get a much better understanding of what you are investing in:
  • What is the company all about?
  • How much money are they making?
  • What is the historic performance of this stock?
  • What is the P/E ratio?
  • What is the market?
  • What is the market cap?
  • What is the moat?
Oct 5, 2021

What do experts believe a person should have before investing? ›

Before you make any investing decision, sit down and take an honest look at your entire financial situation -- especially if you've never made a financial plan before. The first step to successful investing is figuring out your goals and risk tolerance – either on your own or with the help of a financial professional.

What three questions should Americans ask themselves to determine if they need financial help? ›

These three simple questions from financial experts will help first-time investors determine if they're ready to start getting into the stock market.
  • Why do you want to invest? ...
  • What do your emergency savings look like? ...
  • What's your monthly budget?
Jan 3, 2020

How do investors evaluate a company? ›

Understanding how to evaluate a company for investment is actually fairly simple. Basically, you need to examine four important factors about the company: balance sheet liquidity, earnings growth on the income statement, return on assets, and operating cash flow.

What is scorecard method? ›

The Scorecard Method is used for comparing target companies to similar startups, such as business sector, stage of development and geographic location. You compare your target company to the norm for several factors and then adjust the median by your appraisal of the target.

How do you value a startup at every stage? ›

The simplest way to value an early stage startup is through comps; but businesses are unique, so accuracy is low. Get additional inputs by working backwards from how much cash you need and the ownership investors will ask for.

What questions should be asking in order to make an investment decision? ›

Ask yourself:
  • How does the investment work? ...
  • What are your goals? ...
  • What are the risks of this investment? ...
  • How much do you expect to earn on this investment? ...
  • How long do you plan to invest. ...
  • What are the costs to buy, hold and sell the investment? ...
  • What other investments do you have already?
May 31, 2021

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