Quick Analysis Using G.E.T.

 

Gross Profit Margin

Company with a Durable Competitive Advantage:

Undiscovered Company:

 

Equity Bond Theory

Equity Bond Theory for a Taxable Bond:

Equity Bond Theory for a Tax-Free Municipal Bond:

 

Total Long-Term Debt to Income Ratio

 

Analysis of the Income Statement

 

Business Cost to Gross Profit Ratio

For a good company:

For a great company:

 

Research and Development

For a company with a Durable Competitive Advantage:

If the company has Research and Development cost, that is if:

Use this ratio as a guide:

 

Depreciation/Amortization to Gross Profit Ratio

 

Interest Expense to Operating Income

For companies in the consumer products industry:

For companies in other industries:

 

Net Income to Total Revenue Ratio

For companies with a Durable Competitive Advantage:

For undiscovered or good companies:

For companies in the financial industry use a ratio of less than 20% as a guide:

 

Net Income

 

Quick Check for Accounting Gimmicks

 

Analysis of the Balance Sheet

 

Cash and Short Term Investments

Check if Cash and Short Term Investments are historically consistent with Net Income:

and

 

Total Receivables to Gross Profit

Total Receivables to Gross Profit must be consistently less than its competitors:

 

Inventory

Check if Inventory and Net Income are on a historical corresponding rise:

and

 

Property/Plant/Equipment

Check if Property/Plant/Equipment is greater than Total Debt:

 

Check if Property/Plant/Equipment is increasing with Net Income:

and

 

Intangibles and Brand Name

Give the company's brand name an estimated worth and add it to Intangibles.

 

Total Assets

Check if Total Assets is a very large number. More is better.

 

Long Term Investments

Google what the company's Long Term Investments are. There might be something very valuable here.

 

Notes Payable/Short Term Debt

Check if Notes Payable/Short Term Debt is less than Cash & Equivalents and Long Term Debt.

and

 

Current Portion of Long Term Debt/Capital Leases

Check if Current Port. of LT Debt is much less than Cash & Equivalents:

Check the company's financial health:

Check if the company will survive a recession:

If the company's financial health is not good, meaning the company has more debt due than cash, these are the potential outcomes:

Does the company have a Durable Competitive Advantage?	Potential Outcome
Yes	Take Over Target
No	Bankruptcy

 

Adjusted Debt to Equity Ratio

 

Preferred Stock

Companies that have a Durable Competitive Advantage usually do not have Preferred Stock.

 

Retained Earnings

Check if the company has Retained Earnings:

 

Check if Retained Earnings is growing over the years:

 

Determine the Retained Earnings growth rate:

 

During a recession check if the company has enough cash to survive:

 

Treasury Stock

Check for stock buybacks:

 

Return on Shareholder's Equity

Check if Return on Shareholders' Equity is greater than 20%:

 

True Return on Shareholder's Equity

If the company has Treasury Stock:

Check if True Return on Shareholders' Equity is greater than 20%:

 

If Shareholder's Equity is Negative

If Shareholders' Equity is negative check the 10 Year Summary for strong Net Income:

If the Company has Negative Equity
Durable Competitive Advantage	Strong Net Income (10 Year Summary)
Competitive Industry	Erratic Net Income (10 Year Summary)

 

Analysis of the Cash Flow Statement

 

Capital Expenditures

For a good company:

 

For a great company with a Durable Competitive Advantage:

 

Issuance Retirement of Stock

Add all the values for the previous years and see if you get a negative number: