INVESTMENT CHECKLIST

Compiled by Venkatesh Jayaraman (@VenkateshJayar2)

Contents
MANAGEMENT .............................................................................................................................................................. 1
FINANCIAL RATIOS......................................................................................................................................................... 2
FINANCIAL FORENSICS................................................................................................................................................... 3
1 COMPETITIVE ADVANTAGE ........................................................................................................................................... 3
GROWTH........................................................................................................................................................................ 4
VALUATION.................................................................................................................................................................... 4
PHILIP FISHER 15 POINT SCUTTLEBUTT ......................................................................................................................... 4
TIM BENNETT – 10 SIGNS OF A COMPANY IN TROUBLE ............................................................................................... 5
BEHAVIORAL .................................................................................................................................................................. 6
BUSINESS MODEL .......................................................................................................................................................... 6
OTHER IDEAS ................................................................................................................................................................. 6

Overview of this Investment Checklist

• Ideas mainly contributed by many from Twitter, categorized into appropriate heads.
• This is not a refined/exhaustive checklist and will evolve over a period, with suggestions and inputs.
• Some terms could be new for some readers…Feel free to take help of internet search, where there
are tons of materials for these parameters which does more justice than a Twitter Question / Reply.
• Heading order or content order within the headings are random. Order does not indicate
importance.

DISCLAIMER
• The contents discussed are for a high-level understanding with a few pointers on investment
checklist for your thoughts and not a (1) exhaustive nor (2) a ‘ready-to-implement’ nor (3) a
complete investment philosophy.
• This content is for educational purposes.
• I have made best efforts to ensure accuracy of contents in this presentation. However, errors
could creep in beyond my best effort. Kindly bring to my notice and the same shall be rectified.
• I nor the contributor of ideas shall in no way be responsible to any one (directly or indirectly) for
any kind of loss that might arise from using or sharing the information/ideas in this file.

MANAGEMENT
• Promoter Holding – Annual Reports
o Promoter holdings greater than 50% is preferable – Higher the better!
o Movement in Promoter holdings – There would be regular quarterly filings by the
company to the exchanges
o Pledge in promotor holdings
• Do promotors have any issues in the past – Google Search
Venkatesh Jayaraman (@VenkateshJayar2)
 • How promoters managed the worst times? - Concalls
• Do promoters frequently dilute equity?
• Promoter competence – Education, Technical and Involvement in Business
• Clarity of succession plan in case of family run business
• Check for Related Party Transactions – Annual Reports
• What is the reputation of management among creditors, workers, suppliers and lenders?
• How are minority shareholders treated?
• Do they reinvest properly? If there are no reinvestment opportunities, does the company
o Hold cash or
o Payout as Special dividends or
o Buy backs
2
• What is their approach? Long term or short-term focus.
• How many years are they in Business? – Annual Report

FINANCIAL RATIOS

Balance Sheet • Liquidity Ratios – Current and Quick ratios

• Solvency Ratios – D/E and Interest Coverage Ratios
• Book Value
• Long term and short-term advances
Income Statement • Operating Margin
• Earning Per Share
• Profitability ratios
• Extraordinary items
Cash Flow Statement • Free Cash Flow (FCF)
• Operating Cash Flow (OCF)
• Cash Return On Invested Capital (CROIC)

Other Important Ratios / Pointers

• ROE
o ROE for 10 Years
o Average for the above 10-year period to be > 15%
o Insights from Dupont Analysis
• Cash Conversion Cycle
• Cost of Goods Sold (COGS)
• Amount spend on Research and Development
• Debt
o Low Debt or Debt free status is preferable
o Growth of debt over a period of time
o What is cost of debt?
o Who funds the debt?*
• Tax: what is the rate at which tax is paid or is provisioned?
• Contingent and off-balance sheet liabilities
• Dividend Analysis
o Consistency and growth of dividends

Venkatesh Jayaraman (@VenkateshJayar2)

 o Dividend paid history for 10 years
o Dividend payout ratio
o Dividend yield
* Why would this source of debt funding be important? If the debt is funded by a related party/entity, then the
profits earned get transferred to the entity in the form of interest. Outcome: NPM will be low. One may also need
to check the increase of debt gradually by the entity!

For Banks and NBFC

(Shared by Balaji Ganesan @BalajiGanesan2) – To reach out to him, for any further queries!

• Net Profit Growth • Capital Intensity ratio = Cap

3 • Advances / Loans Growth Employed/Sales - lower the better Low
• Provisions / Net profit - lower the better Capital dilution
• Deposits / Net profit - lower the better • Borrowings/Raise money at cheap rates
• Superior ROE > 20 • Consistent Earnings growth
• High Profit growth > 18 • High Dividend payout
• High ROA > 1.5 • High Tax rate
• DCF valuation - learn and use - compare • Op. Expenses / Interest Income - lower the
with Market cap better
• ROIC>Cost of Capital • High Net Interest Margin
• Is regular capex needed for to run the • High CASA Ratio
business? - Bad • High Capital Adequate Ratio
• Low Gross NPA
• Low Net NPA

FINANCIAL FORENSICS
There is a doubt in the minds of every investor, as to what extend the numbers in financial statements is
correct or relied up. Financial forensics helps to a extend…not totally! There are some tools

• Altman Z Score
• Modified C Score
• Piotroski Score
(All the three scores are readily available in https://www.valueresearchonline.com/ for registered users)

COMPETITIVE ADVANTAGE
• Competitive Landscape of the industry
• Number of players
• Industry Structure - Monopoly, Duopoly or Oligopoly
• Movement in market share among the players
• Is the company a low cost producer?
• Net Profit Margin - Industry average Vs company Average Vs Competitor Average
• Is Margins being improved or maintained or decline?
Porters Five Forces Analysis to analyze Competitive Rivalry
1. Number of Competitors ______
COMPARISION OF FINANCIALS FOR TOP 5 PLAYERS

Venkatesh Jayaraman (@VenkateshJayar2)

 Metrics Current Competitor 1 Competitor 2 Competitor 3 Competitor
Company 4….
MCAP (Cr.)
Revenue (Cr.)
Profit (Cr.)
Net Margin (%)
ROE (%)
D/E Ratio
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
4 _______________________________________________________________________________
2. Supplier Power
_______________________________________________________________________________
_______________________________________________________________________________
3. Buyer Power
_______________________________________________________________________________
_______________________________________________________________________________
4. Threat of Substitution
_______________________________________________________________________________
_______________________________________________________________________________
5. Threat of New Entry
_______________________________________________________________________________
_______________________________________________________________________________

GROWTH
• Growth of Sales, Operation Margin and Net Profit (Better than peers)
• 10 Years, Sales and Profit CAGR
• Future expansion plans
• Length of runway – Chances of disruption
• Scalability and sustainability of business
• Size of the opportunity

VALUATION
• Discounted Cash Flow Analysis
• EBIT / Enterprise Value
• Payback Ratio = Market Cap / Current year FCF
• Sum of projected PAT over next 10 years greater than present Market capitalization
• Price Ratios
o Price to Book
o Price to Sales
o Price to Earnings
o Price to Cash
o Price to Earnings Growth (PEG) – A value less than 1 is preferable
• Have you considered Margin of Safety? How much is it?

PHILIP FISHER 15 POINT SCUTTLEBUTT

Venkatesh Jayaraman (@VenkateshJayar2)

 S. No SCUTTLEBUTT OBSERVATION
1 Does the company have products or services with sufficient
market potential to make possible a sizable increase in
sales for atleast several years?
2 Does the management have a determination to continue to
develop products or processes that will still further
increase total sales potentials when the growth potentials
of currently attractive product lines have largely been
exploited?
3 How effective are the company’s R&D efforts in relation to
its size?
4 Does the management have an Above-Average sales
5
organization?
5 Does the company have a worthwhile profit margin?

6 What is the company doing to maintain or improve profit

margins?
7 Does the company have outstanding labor and personnel
relations?
8 Does the company have outstanding executive relations?

9 Does the company have depth to its Management?

10 How good are the company’s cost analysis and accounting

controls?
11 Are there other aspects of the business, somewhat peculiar
to the industry involved, which will give the investor
important clues as to how outstanding the company may
be in relation to its competition? (Unfair Advantage that
could give a competitive edge)
12 Does the company have a short-range or long-range
outlook in regard to profits?
13 In the foreseeable future will be growth of the company
require sufficient equity financing so that the larger
number of shares then outstanding will largely cancel the
existing stockholder’s benefit from this anticipated
growth?
14 Does the Management talk freely to investors about its
affairs when things are going will but “Clam Up” when
troubles and disappointments occur?
15 Does the company have management of unquestionable
integrity?

TIM BENNETT – 10 SIGNS OF A COMPANY IN TROUBLE

S. No SIGN TO CHECK REMARKS
1 Huge Good Will
2 Current Ratio - Low current ratio, creates cash flow
problems

Venkatesh Jayaraman (@VenkateshJayar2)

 3 Gearing
4 Off Balance Sheet
5 Plunging Cash Flows (Cash flow not keeping pace with
profits)
6 Adjusted EBITDA
7 Key Managerial changes (A change after IPO is more
dreadful)
8 Directors dumping shares
9 One Customer
10 Rapid expansion
6

BEHAVIORAL
For investment success, it is our own behavior that matters the most. So do have a customized checklist
for your own behavior when it comes to investment decisions! A few pointers below

• Write down the investment thesis, don’t hurry to buy. Sleep on the idea for a few days before
taking a decision
• Check the narrative part of your thesis and challenge them by demanding numbers
• Watch for behavioral biases like:
o Fear of Missing Out (FOMO)
o Halo effect
o Recency Bias
• Check your inner state of mind – Bored? Excited? Tired? (If you are excited, deliberately pace down
😊)
• How many Annual Reports and Financial statement have you analyzed? (Minimum 8-10 years
would be ideal, considering the business would have gone through the up and down cycle in this
period)
• 20-25% sudden fall/rise should be investigated

BUSINESS MODEL
• Cyclic or secular business
• Old Economy or New Economy
• Focused Business or Conglomerate
• Organized or Unorganized market
• Domestic or Global Business
• B2B or B2C or B2G
• Simple of complex product
• Is the business easy to understand?
• Does the business require frequent CAPEX?
• What are the raw materials / Which raw material forms most of the cost?

OTHER IDEAS
• Employee happiness measured through union leaders, workers, any strikes that happened, how
timely is salary revisions, perks besides package.

Venkatesh Jayaraman (@VenkateshJayar2)

 • Consume happiness - Their feels product quality, after sales service, product duration beyond life
etc.
ADDITIONAL READINGS
The following are good reads on this subject of Investment Checklist. Thank You @mastersinvest for
sharing this
http://mastersinvest.com/checklistquotes/
http://mastersinvest.com/newblog/2017/7/1/building-an-investment-checklist
http://mastersinvest.com/newblog/2017/7/31/building-an-investment-checklist-part-2
7 https://www.valueinvestingworld.com/2019/01/final-decision-checklist.html
ACKNOWLEDGEMENTS

Many ideas were contributed in the initial list in Feb 2019 by Twitter Community… Thanks to

@ArchanaVaidya5, @stockaddict2017, @mastersinvest, @pbangafbd, @Kdsfirm, @shanky_4,

@SaiKart95943947, @kumz05, @MukundShevkar, @BalajiGanesan2, @fmstheory, @DPB_Teacher,
@DjpPascale7, @inquisitiveniks, @SudeepAditya, @87_guru, @aman204, @suhel_2004,
@maheshb2101, @ChgedaHiten, @tejasseth, @thevishalrajpal, @Vivek_Ruparel, @AUM_Nirav,
@narula_mayank, @rcpatel, @nithin_lakshman, @poongiloongi

Please visit my landing page https://www.linkedin.com/pulse/my-notes-compilation-value-

investing-venkatesh-jayaraman/ for more such presentations, notes and compilations on topics
related to Personal finance and Value Investing.

Venkatesh Jayaraman (@VenkateshJayar2)