INVESTMENT CHECKLIST-I

1.
2.
3.
4.
5.

Understanding the Business The basics

Understanding the Business From the
customers perspective
Evaluating the strengths and weaknesses
of a Business and Industry
Measuring the Operating and Financial
health of the Business
Evaluating the Distribution of Earnings (CF)

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INVESTMENT CHECKLIST-II
6. Assessing the Quality of Management
Background and classifications: Who are they?
7. Assessing the Quality of Management
Competence: How management operates the
Business
8. Assessing the Quality of Management- Positive
and negative traits
9. Evaluating growth opportunities
10.Evaluating Mergers & Acquisitions

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UNDERSTANDING THE BUSINES

Do I want to spend a lot of time learning about
the business
How would you evaluate the business if you
were to become its CEO
Can you describe how the business operates,
in your own words
How does the business makes money
How has the business evolved over the time
In what foreign markets does the business
operates, and what are the risks of operating in
these countries

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UNDERSTANDING THE BUSINESS FROM THE CUSTOMERS

PERSPECTIVE

Who is the core customer of the business

Is the customer base concentrated or diversified
Is it easy or difficult to convince customers to buy the
products or services
What is the customer retention rate for the business
What are the signs a business is customer oriented
What pain does the business alleviate for the
customers
To what degree is the customer dependent on the
products or services
If the business disappeared tomorrow what impact
this have on the customer base
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EVALUATING THE STRENGTHS AND WEAKNESSES OF A

BUSINESS AND INDUSTRY

o Does

the business have sustainable competitive

advantage and what is its source
o Does the business possess the ability to raise
prices without losing customers
o Does the business operates in a good or bad
industry
o How has the industry evolved over time
o What is the competitive landscape and how
intense is the competition
o What type of relationship does the business
have with its suppliers
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MEASURING THE
OPERATING AND FINANCIAL
HEALTH OF THE BUSINESS

What are the fundamentals of the business

What are the operating metrics of the
business that you need to monitor
What are the key risks the business faces
How does inflation affect the business
Is the businesses balance sheet strong or
weak
What is the return on invested capital for
the business
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EVALUATING THE DISTRIBUTION OF EARNINGS (CF)

Are

the accounting standards used are

conservative or liberal
Does the business generate revenues that are
recurring or from one-off transaction
To what degree is the business cyclical,
countercyclical, or recession resistant
To what degree does operating leverage impact the
earnings of the business
How does working capital impact the cash flow of
the business
Does the business have high or low capital
expenditure requirements
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ASSESSING THE QUALITY OF

MANAGEMENT BACKGROUND AND
CLASSIFICATIONS: WHO ARE THEY?
What type of manager is leading the company
What are the effects on the business of
bringing in outside management
Is the manager a lion or a hyena
How did the manager rise to lead the business
How are senior managers compensated and
how did they gain their ownership interest
Have the managers been buying or selling the
stock

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ASSESSING THE QUALITY OF

MANAGEMENT COMPETENCE: HOW
MANAGEMENT OPERATES THE BUSINESS
Does

the CEO manage the business to benefit all stakeholders

Does the management team improve its operational day to
day or does it used a strategic plan to conduct its business
Do the CEO and CFO issue guidance regarding earnings
Is the business managed in a centralized or decentralized way
Does management value its employees
Does the management team know how to hire
Does the management team focus on cutting unnecessary
costs
Are the CEO & CFO are disciplined in making capital
allocation decisions
Does the CEO & CFO buyback stock opportunistically

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ASSESSING THE QUALITY OF MANAGEMENTPOSITIVE AND NEGATIVE TRAITS

Does

the CEO loves the money or the

business ?
Can you identify a moment of integrity for the
managers
Are managers clear and consistent in their
communications and actions with stakeholders
Does management think independently and
remain unswayed by what others in their
industry are doing
Is the CEO self promoting ?
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10

EVALUATING GROWTH
OPPORTUNITIES

Does the business grow through M&A or

does it grow organically
What is the management teams motivation
to grow the business
Has historical growth been profitable and
will it continue
What are the future growth prospects for
the business
Is the management team growing the
business too quickly or at a steady pace
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11

EVALUATING MERGERS &

ACQUISITIONS
How

does management make M&A

decisions
Have past acquisitions been profitable

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12