# Investment Evaluation Checklist

## 1. Initial Screening

- [ ] Is the business within your circle of competence?
- [ ] Can you explain the business model in one sentence?
- [ ] Does the company operate in a stable or growing industry?
- [ ] Is the industry free from significant regulatory uncertainty?
- [ ] Is the business resilient to economic cycles?

## 2. Financial Health and Performance

- [ ] Calculate and assess: EBIT/EV ratio
- [ ] Calculate and assess: Normalized EBIT/(NWC + Net Equipment) ratio
- [ ] Review debt levels: Is the balance sheet healthy?
- [ ] Analyze free cash flow generation over the past 5 years
- [ ] Calculate owner earnings (adjusted free cash flow)

## 3. Company's Competitive Position

- [ ] Identify the company's primary competitive advantage (moat)
- [ ] Assess the company's market share within its industry
- [ ] Evaluate the company's pricing power: Strong, Moderate, or Weak?
- [ ] Analyze the company's brand strength or customer loyalty
- [ ] Review the company's operational efficiency compared to peers

## 4. Industry Competitive Landscape

- [ ] Threat of new entrants: High, Medium, or Low?
- [ ] Threat of substitute products or services: High, Medium, or Low?
- [ ] Bargaining power of customers (buyers): High, Medium, or Low?
- [ ] Bargaining power of suppliers: High, Medium, or Low?
- [ ] Intensity of competitive rivalry: High, Medium, or Low?

## 5. Management Quality

- [ ] Verify management's ownership stake
- [ ] Review past shareholder communications for honesty
- [ ] Assess capital allocation decisions over the past 3-5 years
- [ ] Check for any history of unprofitable expansions or acquisitions
- [ ] Evaluate the use of excess cash (e.g., dividends, buybacks)

## 6. Growth Prospects

- [ ] Project normalized EBIT for the next 3 years
- [ ] Identify specific growth opportunities or new markets
- [ ] Assess alignment with long-term industry trends
- [ ] Evaluate the scalability of the current business model
- [ ] Review the company's R&D or innovation pipeline

## 7. Risks and Valuation

- [ ] List top 3 risks that could significantly impact the business
- [ ] Calculate the margin of safety in the current stock price
- [ ] Compare key valuation multiples to industry peers
- [ ] Review accounting practices for any red flags
- [ ] Assess your comfort level with a 5-10 year holding period

## Final Assessment

- [ ] Does this investment improve portfolio diversification?
- [ ] Rate your confidence in the business (1-10 scale)
- [ ] Is the potential return worth the identified risks?
- [ ] How does this investment fit with your overall investment strategy?
- [ ] Make a final decision: Invest, Watch, or Pass

**Action:** Discuss findings with your investment team. Document your analysis for each section to support your final decision.