Another aspect I like to look at when considering an investment in common stock to look at the number of shares outstanding.  Is the number of outstanding shares increasing or decreasing and why? 

 Since each share outstanding represents proportional ownership of the underlying business, more shares outstanding means your stake is being diluted while fewer shares outstanding increases your ownership position.  However fewer shares outstanding may not be a good thing.  If management is buying back shares when they are particularly expensive (think high PE ratio) it may not be a good economic decision for the company.  Or management may be buying back shares to inflate their bonus as mentioned in today’s New York Times.  Owning a greater portion of a company that isn’t using their money wisely isn’t necessarily a good thing.  Of course if management is buying back shares because they are particularly cheap in the market, the remaining shareholders win not only because their proportional share is increasing but also because the company is making a sound financial decision.  Recently, Warren Buffett said Berkshire Hathaway would be would be buying back their stock whenever it fell below 110% of book value, indicating that he felt the company was worth considerably more.  Sounds like a real win to the remaining shareholders to me. 

Conversely, management may be increasing the number of shares outstanding for a number of reasons.  They may simply feel that the market has valued their shares too highly and they want to take advantage of the high price to make an acquisition or to raise capital for other investments.  Shares may also be increased because employees are exercising stock options. 

In short you want management to follow that old adage- Buy low, Sell high! If you see the number of shares increasing or decreasing substantially you should try to find out if management was making a good economic decision- selling expensive shares or buying cheap shares, or a bad economic decision- buying expensive shares and selling cheap ones.  It will tell you a lot about the management and after all, these are the people you are considering trusting your investment to.