The remarks of Warren Buffet and analysis by Buffett authors suggest that, at the very
least, Warren Buffett looks at the following aspects of a corporation and its operations.
They can be put in the form of questions that any sensible investor should ask before
considering a stock investment.
Basic questions to ask
1. Does the company sell brand name products that are
likely to endure?
2. Is the business of the company easily
understood?
3. Does the company invest in and operate businesses within its area of expertise?
4. Does the company have the ability to maintain or increase profitability by raising
prices?
5. Is the company, looking at both long-term debt,
and the current position, conservatively financed?
6. Does the company show consistently high returns on
equity and capital?
7. Have the earnings per share and sales per share
of the company shown consistent growth above market averages over a period of at least
five years?
8. Hs the company been buying back its shares, and if
so, has it bought them responsibly?
9. Has management wisely used retained earnings to
increase the rate of return to shareholders?
10. Is the company likely to require large capital sums to ensure continuing
profitability?
This would only be the first stage of the process. The next, and most important
question, is determining the price that an investor such as
Warren Buffet would pay for the stock, allowing for the margin
of safety.
