MoneyMonk’s Checklist for Business Analysis & Evaluation

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If we want to come to a conclusion whether the company is a good buy or not, we have to consider 3 aspects.

  1. Business
  2. Management
  3. Valuation

So in-order to aid our decision making, creation of check-lists become necessary. It will help us to minimize the error and reduce the bias in decision making.

I am working on developing my own checklists for Business, Management & Valuation. Here I am posting my Business Evaluation Checklist.

Pre-requisites

  • What does company do?
  • Major Business Segment
  • Value Chain of Business
  • Position of Company in such value chain
  • Know Suppliers, Customers & Consumers
  • Major Competitors
  • Rank in Industry
  • Explain it to 10 Years old

Brief History

  • Create Timeline Since Inception
  • Check Focus of Management over the Years?
  • Experience of Key Persons?
  • Survival in Downtime?

Qualitative Aspects

  • Quality of Business
    • Peters 5 Forces
      • Entry barriers
        • Licence
        • Suppliers
        • Customers
        • Process / Technology
        • Experience
      • Current Competition
        • Who is leading? why?
      • Threat of Substitute
        • E-commerce Risk
          • For all Distribution Chains
        • App Store Risk
          • For all Service Business
          • For all product business that is operating due to Cam, Screen, GPS, WiFi or Signal
        • Cheap Labor Countries
      • Bargaining Power of Customers
        • Temporary/Permanent?
        • Industry vs. Company?
      • Bargaining Power of Suppliers
        • Temporary/Permanent?
        • Industry vs. Company?
    • Quality of Earnings
      • Are the revenues and cash flows of the business?
      • Are there temporary tailwinds enhancing FCF?
    • ¬†Powers
      • Pricing Power
        • Check OPMs during Downtime
        • Are margins Sustainable?
        • Passing on the Cost Advantage?
        • Who controls the Pricing (FG & RM both)
      • How do this company is different from bad ones in the same industry?
      • If you had access to unlimited capital, how would you feel about your chances of successfully competing
      • Compare the company with weak competitors. what is the difference why?
    • Business Ecosystem
      • Changes in Technology
      • Environmental Issues
      • Exposure to Inflation
        • RM
        • Labor
        • Power
        • Other Cost
      • State of Labor
        • Labor Union
        • Government Intervention
        • Business Atmosphere
      • Relative Powers
        • Customers Analysis
        • Suppliers Analysis
        • Rules & Regulations Analysis
        • Competitors Analysis
    • Moat
      • Is there a solid moat?
      • Emerging Moat? How?
      • Why?
        • Low Cost?
        • Strong Brand?
        • Customer Emotion?
        • Addictive Product?
  • Quality of Product or Service
    • Customer’s Perspective
      • Prospective Customers
        • Will they buy? Why?
      • Loyal Customers
        • Why they will not leave?
        • What turned them in Loyal Customers?
      • Existing Customers
        • Why they will turn into loyal?
        • Why they came to us & not to
      • Former Customers
        • Why they left?
        • Will they come again? Why?
        • They will not come again? why?
      • Reviews of Those who can afford but don’t need/want?
        • How they see this product?
        • Adding value to consumers?
        • How they perceive it’s consumers?
        • How they perceive it’s creators?
      • Reviews of Those who cannot afford but want/need?
        • How they see this product?
        • Adding value to consumers?
        • How they perceive it’s consumers?
        • How they perceive it’s creators?
    • Growth Potential
      • Visible Opportunity?
        • How big?
        • In what time?
        • What’s there in for us?
      • Can the company scale?
        • Why Yes?
        • Why No?
      • Scalability Advantage?
        • Lower RMs
        • Bigger Customers
        • Lower Working Cap
        • Better Margins
      • Organic / Inorganic Growth?
      • Reinvestment of Cashflow at same %
    • Risks
      • Big Unknown?
      • Pre-mortem
        • What can go wrong?
        • What makes this investment decision disaster after 10 years in hindsight?

Quantitative Aspects

  • Industry Analysis
    • How Industry Work?
      • Create a Simple Flow Chart Under 5 Mins
      • Consider Macro Factors
        • Geo Politics
        • Domestic Politics
        • Government Intervention
        • Worldwide Commodity Prices
        • Sourcing of RM
        • Selling of Products
      • Factors needed for Superior Permance?
    • Define Industry Revenue Size
      • Current Size?
      • Future Size?
      • Where we stand now?
      • Where in future?
    • Business after 10 years?
    • Company Vs. Industry?
    • Comany Vs. Peers?
  • Financial Analysis
    • Balance Sheet
      • Debt / Equity
      • Capital Structure
      • Current Ratios
      • ROE
      • ROCE
    • Profit & Loss
      • Sales Growth
        • Earning Visibility
      • Profit Growth
      • Financial & Operating Leverage
      • OPM & NPM
      • Tax payout
      • Dividend Payout
      • Interest Coverage
      • Other Fixed Cost (Advertising, Rent)
    • Cash Flow Statement
      • Operating CF
      • Investing CF
        • Capex Requirement
          • Maintenance Capex
          • Growth Capex
        • Financial CF
      • Other Financial
        • Cumulative PAT vs CFO
        • Revenue Share vs. Profit Share
        • Accounting Profit vs. Economic Profit
        • Owners Earning, Retention vs. Value Creation
        • Market Cap to Sales & Forward PE Ratio
        • Trends in Inventory Turns, Days Payable/Receivable & Working cap?
        • Free Cash Flow Yeild (After Tax CF/Market Value)
      • Margin Analysis
        • RM Cost
        • Employee Cost
        • Power cost
        • Fixed Costs
        • Gross Margins
        • Core EBDTIA Margins
        • Accounting Adjustments
        • Economic Earnings
        • Last 10 Years Analysis
        • Company Vs. Peers
        • Company Vs. Industry Avg.

I will update this checklist from time to time as and when I get insights or experience. Please let me know if you feel there shall be some addition to it.

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