We view business evaluation as the intersection of accounting analysis, experience, wisdom and art.
We do not believe in the ability to read a chart and see into the future, but we do believe in the ability to analyse charts in aid of increasing the margin of safety, a principle of investing in which an investor only purchases securities when their market price is significantly below their intrinsic value

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Business Valuation Criteria in 10 Steps 
​(Note: The goal is to refine an algorithm to project the theoretical future value of a stock based on the criteria listed below and then to calculate an appropriate buy price within a reasonable margin of safety)

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Step 1: Marketplace
Is the marketplace expanding? 
Is the company’s share of the marketplace expanding?​
​Does this marketplace have good profit margins?

A great company’s profitability depends on having a good profit margin and consistently increasing it. This margin is calculated by dividing net income by net sales. Investors should look back at least five years for a good indication of historical profit margins. Look for companies with profit margins > 20% (typically banks, resource and tech stocks).

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Step 2: Leadership
Does the company display strong leadership, entrepreneurial character and competitiveness?​

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Step 3 Earnings
Have earnings been going up during the last 3 years?
Are earnings projected to continue to go up this year and next year?
Look for stocks which analysts have recently (in the last 90 days) reevaluated and revised earning calculations upwards for this year and next year. 

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Step 4 Cumulative Earnings

What is the cumulative value of 5 years of earnings shown compared to the stock price? ​
Look for stocks with 5 years of cumulative earnings that add up to over 50% of the current stock price, ​​

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Step 5 Price to Earnings Ratio

What is the price over earnings?
What is the 5 year growth percentage?
What is the growth % compared to the P/E?

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​Step 6 Dividends

Is the dividend generous (ie: above 4%)?
Is the dividend easily covered by earnings?
Is the stock a dividend aristocrat (ie: dividend growth on a yearly basis over 25 years)

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​Step 7 Global Reach

Does the company sell globally?

Stocks with Global reach can offer diversification benefits by reducing exposure to the economic conditions of a single region, while accessing a broader customer base, more diverse markets and greater opportunities. 

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​​Step 8 Directors

Do the directors own more than 10% of the company?
Are directors adding to their share ownership? 
Is the company buying back its shares?

Note: ​Although purchasing activity may reflect perceived value in a security, selling activity may or may not be related to a stock’s valuation; perhaps an insider needs to raise money for personal reasons. An insider’s total holdings should be considered because a sale may, in context, be insignificant if this person has a large remaining position in the company. Put greater weight on insider transaction activity when multiple insiders are trading a company’s shares or units.

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​Step 9 Other Durable Competitive Advantage Ratios

• SGA/gross profit ratio < 30% - 80% 
• Interest payouts ≤ 15% of operating income.
• Historical net earnings/total revenue ratio ≥ 20%. Never ≤ 10%.
• Current ratio > 1. & Debts to shareholders’ equity ≤ 0.8
• Net earnings enough to pay all long-term debt in 3–4 years.
• Capital expenditures/net earnings ≤ 25% - 50%.

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Step 10 Portfolio Balancing Between 6 Economic Sectors

​Balancing an investment stock portfolio among the 6 economic sectors noted below can increase the margin of safety. A sample of stocks have been provided which score well in our algorithm for each sector. These selections are designed to be held for the long run, however, they will change on this page from time to time. Always ensure that you do the appropriate research before investing. 

Multi-Sector

Utility

Manufacturing

Consumer Products

Resources

Financial