Recently I read a book called "The Little Book of Value Investing", authored by Christopher H. Browne. This book has a chapter talking about a set of questions for you before you place your bet. Let's read.... Cool

Of course,  you should analyse her balance sheet, incoming statement; derive various financial ratios beforehand....

1.    What is the outlook for pricing for the company’s product? Can the company raise prices? Each dollar of price increase will increase pre-tax income by $1.00 if costs do not increase.


2.    Can the company sell more? What is the outlook for units? A 10 percent hike in units will increase gross profits by 10 percent if the gross profit margin does not change. Pre-tax income will go up by this amount if other costs do not increase.

3.    Can the company increase profits on existing sales? What is the outlook for the gross profit margin as a percentage of sales? How much is the gross profit margin expected to increase or decrease as a result of changes in price, mix of business, or the specific costs that make up the cost of goods sold?

4.    Can the company control expenses? What is the outlook for selling, general, and administrative costs/margin as a percentage of sales? Have there been any changes and, if so, what are they?

5.    If the company does raise sales, how much of it will fall to the bottom line?

6.    Can the company be a profitable as it used to be, or at least as profitable as its competitors?

7.    Does the company have one-time expenses that will not have to be paid in the future?

8.    Does the company have unprofitable operations they can shed?

9.    Is the company comfortable with Wall Street earnings estimates?

10.    How much can the company grow over the next 5 years? How will the growth be achieved?

11.    What will the company do with the excess cash generated by the business? Every dollar of profit not given to shareholders in the form of dividends will be retained by the company.

12.    What does the company expect its competitors to do?

13.    How does the company compare financially with other companies in the same business?

14.    What would the company be worth if it were sold?

15.    Does the company plan to buy back stock?

16.    What are the insiders doing?