Investment Checklist

When we buy a stock:

Some important checklist we go through when we buy a stock –

How does the Company make money?

What is the Company’s return on capital employed (ROCE)?

What is the percentage of promoter holding?

Have the promoters pledged any shares?

At what rate is the topline and bottom line of the Company growing?

What is the Company’s debt/equity and interest coverage ratio?

What is the Company’s day’s sales outstanding?

What is the Company’s day’s sales inventory?

How long is the cash conversion cycle?

What is the level of bad debts?

What is operating cash flow to Net profit ratio?

Does the Company generate free cash flow?

What are the Company’s margins?

What is the Company’s dividend payout policy?

Is the Company capitalizing expenses?

Are there any recurring one-time charges?

Are there any investments in marketable security?

What is the Company’s effective tax rate?

What is the interest rate and credit rating on borrowing?

What are the Company’s contingent liabilities?

Are there significant related party transactions?

Has the number of shares outstanding increase substantially over the past few years?

How has Company’s business evolved over time?

Does the Company have any competitive advantage? If yes, what is the source of competitive advantage?

Does management of the Company fulfill its past promises?

Is the board filled with management family members or former managers?

What are the inputs to the Company’s goods and services?

What are the primary markets to which the Company sells and is the customer base concentrated or diversified?

Does the Company reports result much sooner/later than competitors?

Does the Company have ability to raise prices without losing customers?

To what degree is the Company’s business cyclical or recession resistant?

Does the Company have high or low capital expenditure requirements?

Are managers clear and consistent in their communications and actions with stakeholders?

Have the Company’s past acquisitions been successful?

Is there a catalyst for the stock over the investment time horizon?


When we sell a stock:

Following are the five situations when we sell a stock -

If the stock has risen too far above its intrinsic value.

If we have too much money in one stock.

If there is something better we can do with the money.

If the fundamentals have deteriorated.

If we have made a mistake.