Does the company have growth potential for the next several years
Prioritize quality of growth over several years as opposed to year-year comparisons
Is management determined to continue development of products and processes to increase total sales when the growth potential has been exhausted?
Managers can recognize when existing opportunities have reached their potential and new developments need to be explored
Companies are better placed to succeed in new industries that are related to existing businesses than in new unrelated industries
Does the company take a long-term view on profits?
Will future company growth require new equity financing such that benefits to shareholders are offset by the dilution (from the growth) in their claim?
The company relies on current profits rather than contributions from shareholders
If a company relies on contributions from shareholders then the attractiveness of the investment depends on the dilution of the company
The expected growth in earnings needs to be large enough to justify the cost of dilution (p/e)
Profit Margins
Does the company have an attractive profit margin
The exception is companies willing to sacrifice current profits to accelerate their growth over the next few years
It is thus critical that funds go to further research - different from companies that need to reinvest their profits in projects just to stay afloat
What is the company undertaking to protect or grow profit margins?
Avoid industries whose profit margins increase just as a results of price increases
Are there characteristics unique to the business and/or industry that provide useful clues on the position of the company relative to its competitors?
Research, sales, and accounting
Is the company's research and development efforts effective relative to its size?
Leaders must coordinate people of diverse skills and backgrounds: link production, research, sales, and management
Do they have an above average sales team?
Company success is based on the efficiency of the research production and sales teams
Does the company have good cost analysis and accounting controls?
Managerial relations and depth
Does the company have outstanding labor and personnel relations?
Effective working conditions and leadership make for improved productivity
Compare the turnover rate and size of waiting list for job applications against competitors
Companies with above-average profits and above-average wages
Management should seek to resolve grievances and disputes quickly and fairly
Red flags :: mass hirings and firings based on outlook
Depth in management
succession plan for key leaders
Managers should welcome suggestions from across the organization as well as criticism
Honesty and integrity
Is management candid with shareholders during good and bad news?
Does the company have management of unquestionable integrity?