How does one identify a great business? There is a certain set of criteria to do so.
- Consistent history of increasing sales and earnings over the last 5 years
- Sustainable competitive advantage - strong brand, patents & trade secrets, gigantic economies of scale, market leadership, high switching costs, consumer monopoly
- Future Growth Drivers - development of new product lines, upcoming product innovations, new application of patents, expansion in capacity, opening new markets, building more outlets, huge untapped market potential
- Conservative Debt - Long term debt < 3 to 4x current net earnings (after tax), look under long term liabilities/non-current liabilities, net earnings in Profit and Loss (Income) statement
- Return of Equity (ROE) > 15% - Net Income/Total Shareholders Equity x 100%
- Low Capital Expenditure (CAPEX)required to maintain current operation, Free Cash Flow = Cash Flow from Operations - Capital Expenditure
- Honest & Competent Management
- Stock is undervalued, Share Price < Intrinsic Value
- Secrets of Self-Made Millionaires