Benefits Of Stocks Evaluation

Stocks evaluation It has been shown that economic growth rates are much higher in a stock market than in a business environment. This is because the capital markets have become a more efficient meeting place for those with financial resources and those wishing to invest in capital. The problem is that the public does not have all of the information it needs about stocks, so there are significant problems of asymmetric information.

Benefits of Stocks evaluation

1. To provide information to investors

This is done by providing the disclosure of a company which they may not have had before. The rule imposes that investing intermediaries must provide information to investors using standardized presentation formats and procedures. This method helps accumulate and distribute information, as well as applying uniform standards for the evaluation of such information

2. To avoid traders who are not knowledgeable

All those who trade on an exchange must have a basis for making their trading decisions so that they do not choose stocks at random. Also because there is always a risk that investors will invest in companies or businesses which have weak financial ratios then other companies with stronger assets and liabilities, therefore, regulation protects the public from being taken advantage of.

3. To ensure that the financial information is clear and accurate

The information which should be issued to the public is to be given through a standardized presentation format and procedure. This method ensures that all investors receive a fair, complete and accurate description of all information which they need to evaluate investment alternatives. This regulation also forces companies to provide an accurate assessment of their operations as well as financial strength

4. To allow investors to understand the risks they are taking on

This regulation is intended to provide investors with a basis for making comparisons among investments. Companies which provide much information about themselves and their financial ratios do not have to provide too much information on the financial ratios of other companies who have just been introduced to the market. Therefore, they tend to be more cautious in their investments because they are not required to make a decision on such unestablished companies.

5. To help avoid potential fraud and manipulation

The regulations are designed to ensure that all investors get only the information they need and that this information is accurate and complete. Firms can only be involved in the securities market if they acquire sufficient capital, possess certain activities or meet certain requirements for financial status.