What makes a good deal? This is one of the most important questions to ask when investing their money in shares of a listed company. Of course, the goal of each company to provide capital, where before there was none, that is, profits. However, just because the business is profitable today does not necessarily mean that tomorrow will be profitable. To maintain good investments in businesses, profitability over time, and it is unlikelyquick and painful loss of activity.
Here are 5 main factors to look for when evaluating a potential investment in terms of whether a company:
Newspaper sales
One way is to avoid any sudden loss of the company, uses a business model to recurring revenue. There are many examples of this: the food (consumers, drinks, toiletries, etc.), the average subscription for an indefinite period, recipes, business services such as outsourcingWages, consumer services, such as cable TV and broadband Internet, and so on. Generate all these companies, the recurring revenues from customers on a monthly or annual basis, and not necessarily dependent on their products the "hot" in an article.
In contrast, many companies are competitors are winning, and after the victory, sales are often more for the same clients. Magic Formula One example is the LCA-Vision (LCAV), the laser providesCorrective eye surgery. It is unlikely that most customers need (or want) to two times their vision corrected!
Scalable Low Cost
Growth is an important factor taken into consideration, but the cost of growth is very important for the result. Really big companies can increase their income, not spending much money. Take, for example, eBay (EBAY). Here's a company that has almost all of the Internet and connects buyers and substantiallySuppliers. Once the server, database and software were developed, eBay can accommodate a growing number of customers without a lot of nothing! This scalability at lower costs.
Compare these notoriously bad relations with the airlines company. Airlines to increase revenue, add the streets. The addition of investment for new air routes were to dominate, terminal space, the field of human rights, and so on. Revenues rose is a costly exercise --airlines cannot scale without spending a lot of money to do so. Clearly eBay's way is a lot better!
High Return on Invested Capital
Think about what your goal is when you invest in a stock, or a mutual fund, or a piece of real estate. You are looking for high returns on your investment, right? The same applies to businesses. Simply put, businesses invest capital to earn a return. A business that can earn a higher return on the capital it invests is a better business. Most Magic Formula companies income of 30% or more of the capital invested.
This point is the screen in magic. The mantra of the magic formula to reverse the strategy is the company "well at reasonable prices. The "good deal" is part measured by investment performance. Airlines case against eBay is here to apply. For every purchase of servers from eBay at a substantial return on this investment can be. For every purchase plan airlines unless the increase is due toMaintenance costs and the limited time and space available in a given time. Which brings us to the next point ...
The edges of the high cash flow after repair
Cash flow is what it is ... Here, the capital of a company is to reinvest to enter numbers to save capital to shareholders or pay dividends or repurchase shares. Good companies can convert a high percentage of their sales on the free cash flow - the cash cost for maintaining leftmaintain the society. The margins are usually managed MagicDiligence free cash flow by more than 5%, but this is the type of activity.
Collect the airlines here again. Maintenance of aircraft is a little expensive. Aircraft must function perfectly, which requires a lot of money for parts, labor, tools, etc., and all aircraft to and from locations. All of these funds come from ticket sales, leaving very little for the companybe paid or reinvested. Maintenance costs on eBay are much less sensitive. Maintenance of hardware and software is much cheaper. Thus, eBay has more money to invest (unfortunately, the company has often chosen to use the money to buy other companies insanely expensive).
Durable, structural competitive advantage
All these attributes a good deal is valid only if the attributes to be maintained for a longTime. Otherwise, you can get away and not allowed to own such an agreement.
What are the intrinsic properties of the company to offer these structural advantages and lasting? A good start is the excellent book by Pat Dorsey, The little book that builds wealth read. Dorsey shows how things can be the regulatory requirements of network effects, and intangibles such as brands of the turnover of a company to protect competition. This allows the company to maintain a high return onCapital, which ultimately lead to greater benefits and gains for shareholders.