Durable Competitive Advantage Equations

Quick Analysis Using G.E.T.

 

Gross Profit Margin

Company with a Durable Competitive Advantage:

Gross Profit Margin

Undiscovered Company:

Gross Profit Margin

 

Equity Bond Theory

Equity Bond Theory for a Taxable Bond:

Equity Bond Theory

Equity Bond Theory for a Tax-Free Municipal Bond:

Equity Bond Theory

 

Total Long-Term Debt to Income Ratio

Total Long Term Debt

 

Analysis of the Income Statement

 

Business Cost to Gross Profit Ratio

For a good company:

Business Cost to Gross Profit

For a great company:

Business Cost to Gross Profit

 

Research and Development

For a company with a Durable Competitive Advantage:

Research and Development Cost

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

Research and Development Cost

Use this ratio as a guide:

Research and Development Cost

 

Depreciation/Amortization to Gross Profit Ratio

Depreciation and Amortization

 

Interest Expense to Operating Income

For companies in the consumer products industry:

Interest Expense

For companies in other industries:

Interest Expense

 

Net Income to Total Revenue Ratio

For companies with a Durable Competitive Advantage:

Net Income

For undiscovered or good companies:

Net Income

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

Net Income

 

Net Income

Net Income

 

Quick Check for Accounting Gimmicks

Income Taxes Paid

 

Analysis of the Balance Sheet

 

Cash and Short Term Investments

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

Cash and Short Term Investments

and

Net Income

 

Total Receivables to Gross Profit

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

Total Receivables

 

Inventory

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

Total Inventory

and

Net Income

 

Property/Plant/Equipment

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

Property, Plant, and Equipment

 

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

Property, Plant, and Equipment

and

Net Income

 

Intangibles and Brand Name

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

Intangibles and Brand Name

 

Total Assets

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

Total Assets

 

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.

Notes Payable and Short Term Debt

and

Notes Payable and Short Term Debt

 

Current Portion of Long Term Debt/Capital Leases

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

Current Portion of Long Term Debt and Capital Leases

Check the company's financial health:

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

Adjusted Debt to Equity Ratio

 

Preferred Stock

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

Preferred Stock

 

Retained Earnings

Check if the company has Retained Earnings:

Retained Earnings

 

Check if Retained Earnings is growing over the years:

Retained Earnings is Growing

 

Determine the Retained Earnings growth rate:

Retained Earnings Growth Rate

 

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

Check if the company has enough cash to survive

 

Treasury Stock

Check for stock buybacks:

Treasury Stock

 

Return on Shareholder's Equity

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

Return on Shareholders' Equity

 

True Return on Shareholder's Equity

If the company has Treasury Stock:

Treasury Stock

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

True Return on Shareholders' Equity

 

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:

Capital Expenditures

 

For a great company with a Durable Competitive Advantage:

Capital Expenditures

 

Issuance Retirement of Stock

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

Issuance or Retirement of Stock

 

My Financial Analysis of Stocks

  • Looks Like Capitulation in Viacom (VIAB) Capitulation is when large institutional investors give up on a stock and sell all of their holdings in that stock. Capitulation is a sign of a bottom for a stock ...
    Posted Nov 17, 2017, 10:38 AM by Intelligent Investor
  • IBM's Fortunes Finally Turns Around Today Warren Buffett purchased IBM shares in the year 2012 worth billions of dollars. Yet the stock has pummeled and has been pounded downwards for the past 5 years. The company ...
    Posted Oct 20, 2017, 1:58 PM by Intelligent Investor
  • Exchanged AT&T (T) for Time Warner (TWX) and Dumped Hilton Worldwide (HLT) I exchanged AT&T (T) for Time Warner (TWX). Their merger currently gives TWX a 6% premium. AT&T is offering $107/share for TWX. Time Warner is currently priced ...
    Posted Sep 1, 2017, 4:36 PM by Intelligent Investor
  • My Stock Holdings 2017 View Analysis: My Stock Holdings 2017Hilton Worldwide Holdings (HLT) split into 3 companies. So we now own the following 3 Hilton companies:1) Hilton Worldwide Holdings (HLT)2) Hilton ...
    Posted Aug 28, 2017, 6:46 PM by Intelligent Investor
  • Repurchased Apple After Warren Buffett Confirms He Purchased it As a rule-of-thumb, if an investment has a Return on Equity (ROE) of greater than 30%, it means the company has a Durable Competitive Advantage. Apple's Return ...
    Posted Jun 5, 2017, 12:35 PM by Intelligent Investor
  • Purchased Hilton Hotels in Anticipation of a 3 for 1 Stock Spin-Off Last December I purchased Hilton Hotels in anticipation of a 3 for 1 stock spin-off. In other words, Hilton Hotels will be splitting into 3 independent companies. The most ...
    Posted Mar 1, 2017, 6:12 PM by Intelligent Investor
  • Warren Buffett's 5 Best Investing Tips 1) Don't buy or sell based on the headlines.2) Don't try to profit from bubbles.3) Put your emotions aside.4) Always invest in productive assets.5 ...
    Posted Aug 19, 2017, 4:26 PM by Intelligent Investor
  • Sold Wabco (WBC) to Raise Cash in Case there is a Recession The signs of a recession are getting stronger so I've decided that I needed to raise cash. Out of all the stocks I own, Wabco (WBC) seems to be ...
    Posted Sep 7, 2016, 10:22 AM by Intelligent Investor
  • Sold Chicago Bridge and Iron Chicago Bridge and Iron (CBI) comprise 2.5% of my overall portfolio. I first bought this stock at around $46/share. I sold it at $34. So, I basically took ...
    Posted Aug 25, 2016, 9:50 AM by Intelligent Investor
  • 5 Things to Keep in Mind for Entrepreneurs Interesting article from Mark Cuban.CNBC Article
    Posted Mar 18, 2016, 9:54 AM by Intelligent Investor
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