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

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  • Beyond Meat (BYND) and Dunkin (DNKN), The End Of A Tale Of 2 Speculative Stocks During a recession speculative stocks get pounded down to the ground. Thus, we sold all of our shares of Beyond Meat (BYND) and Dunkin' Donuts (DNKN). Beyond Meat is in ...
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  • The Dow Jones Rallies 1294 Points, Sold More Stocks On This Dead Cat Bounce The Dow Jones jumps 1294 points a few days ago, however, we believe that this rally is a "dead cat bounce". We have to wait for the next quarter's ...
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    Posted Mar 18, 2020, 9:23 AM by Intelligent Investor
  • I'm Calling Tops, It's Over, The Bull Market Is Over, Here Comes The Bear Market, A Recession Is Coming We weren't sure yesterday that the bull market is over. In the morning today, the Dow Jones was up about 300 points, and I thought we were just having ...
    Posted Mar 1, 2020, 10:47 AM by Intelligent Investor
  • Went On A Selling Spree Today I think this stock market bull run is over. I just have a hunch that it's over. However, I've been wrong before. The deadly coronavirus outbreak seems to ...
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Showing posts 1 - 10 of 49. View more »