The Full Checklist
The Basic Checklist:
ü Sector the company is present in?
ü How much holding the promoter has in the company?
ü How much of the promoter holding is pledged?
ü What is the 5 year Revenue CAGR?
ü What is the 5 year Net Profit CAGR?
ü How much has the Interest Cost Increased/Decreased in the last 5
years?
ü What is the Dividend Yeild? Is the Trend Increasing?
ü How much Debt has Increased/Decreased in the last 5 years?
ü How has the Trend changed in Debt/Equity Ratio?
ü How has the Trend Changed in ROE/ROCE?
ü Have the Cash from Operations been positive in the last 10 years?
ü Is the company been generating Free Cash Flow in the last 10 years?
ü Has the company been able to maintain a low Cash Conversion Cycle?
ü Is the product such which can replace imports?
ü Is it difficult to get Raw Material for the said Products?
ü What is the kind of Management? Family or Professional?
ü Have there been any recent Stake Sales by Promoters/FIIs/DIIs?
ü Are there High No. of Associates/Joint Ventures?
ü Have the Company or Promoters or Directors been associated with any
frauds or criminal activities?
ü Does the Management/Promoters draw a high % of salary from the
company?
ü Are Qualifications/Experience of Promoters/Directors relevant to the
Company they are running?
The Valuation Checklist (Qualitative) & The Valuation Checklist (Quantitative):
ü Are you comfortable with the current P/E & P/B of the company?
ü Are Competitor's P/E & P/B similar to that of your company's?
ü Has the Company Performing Better than Nifty/Sector Index
price-wise?
ü What kind of Position Sizing would you be comfortable with for this
Company?
The Financial Shenanigans Checklist:
ü Has the Company made too many Acquisitions which are Expensive?
ü Has the Company been Borrowing continuously?
ü Have the Recievables of the Company been continuously Increasing and
Sales arent increasing on the same rate?
ü Are there many Related Party Transactions for Purchase/Sales/Loans?
ü Have there been many Extraordinary/Exceptional Items in the last 5
years?
ü Is the company Capitalizing R&D & Interest Costs or is it
taking them as Expenses?
ü What is the opinion of the Auditors?
ü Have Auditors been changed recently?
ü Is the Company making enough Disclosures?
ü Have there been any sudden exits from the Top Management/Board of
Directors?
ü Is the company increasing Dividend by Increasing Debt?
ü Is the Promoter connected Politically?
ü Is there a large amount of Other Income in the company's financials?
ü Which sector is the company present in?
ü Is the sector Government Regulated?
ü Is the sector currently in Headwinds/Tailwinds?
ü Is it a commodity based sector?
ü Is it a pollution generative sector? Carbon Footprint is increasing
or decreasing?
ü Is it a capital intensive or labour intensive industry?
ü Is it a market leader in the industry? If not, why choose this
company and not the market leader?
ü Is there a threat of Substitute Products?
ü Is it easy for New Companies to enter this kind of a business?
ü Does it require High Working Capital?
Demagnetize this type of Stocks:
ü Leading Stocks from a Leading Sector in a Bull Run.
ü Cheap stocks at a Later Stage of a Bull Run.
ü Small Microcaps with Untested Business Models.
ü Stock making New Lows Continuously.
ü Market Capitalization Huge in comparison to Other Players in
Industry.
ü Companies carrying out Unrelated Diversification through
Acquisitions (Inorganic Growth)
ü Companies continuously increasing Debt/Equity.
ü Companies in Cyclical Sectors.
ü Have you cross checked all other above sheets and do you feel
confident? Are fully convinced with the stock or are do you still want to test
the stock and see for a few quarters that how is the price performance &
how are the results panning out?
ü Will you create an investing position or a trading position?
ü Are you willing to buy more if it goes down by 10%?
ü Are you willing to buy more if it goes up by 10%?
ü Are you willing to sell if it goes down by 10%?
ü Are you willing to sell if it goes up by 10%?
The Financial Shenanigans Checklist is must i think though all the checklist you mention is important
ReplyDeleteYes it is. Most important to look at when evaluating management. Especially of Midcap/Smallcap companies.
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