Below is the complete version of the well-received value investing cheat sheet. As mentioned before, it is nearly impossible for a company to tick all of these boxes in the current market, but they are useful guidelines.
This took me a long time to compile… I hope you derive value from it.
QUANTITATIVE METRICS:
Value:
Price / Earnings < 15.0
Price / Book Value < 1.5
Price / Sales < 2.0
Price / FCF < 15.0
PEG < 1.0
Price / TBV < 0.7
Price / NCAV < 0.7
EV / EBITDA < 8.0
Current P/E to P/E 5yr High < 0.4
Current P/E to P/E 5yr Low < 0.8
Efficiency:
ROE > 30%
ROA > 15%
ROTA > 20%
ROIC > 20%
ROCE > 20%
ROIC-WACC > 0.2
Inventory Turnover > 4.0
Accounts Payable Turnover > 3.0
Accounts Receivable Turnover > 5.0
Pre-tax Margin > 20%
Health:
Current Ratio > 0.3
Quick Ratio > 1.5
Flow Ratio < 1.25
Liabilities / Equity < 0.8
Debt / Equity < 0.5
Debt / EBITDA < 4.0
Debt / NCAV < 2.0
Long-term Debt / Working Capital < 2.0
Interest Coverage Ratio > 8.0
FCF / Sales > 8%
Growth:
Earnings Yield > 12%
EBIT Yield > 12%
# Of Years Where Earnings Growth < 2X Federal Bond Yield < 2
FCF Yield > 10%
Forward P/E to Trailing P/E > 1.1
Operating Cash Flow / EPS > 1.2
# Of Years With Declining EPS <= 2.0
Current EPS / EPS 10yrs ago > 3.0
Earnings Misses in the Last 24 Months = 0
Dividends:
Dividend Yield > 2%
Number Of Consecutive Years Increasing Dividends > 9
FCF / Dividends Paid > 2.5
EPS / Dividends Paid > 2.5
Payout Ratio < 40%
Number Of Dividend Cuts In Last 10yrs = 0.0
Ratings:
Altman Z-score >= 3.5
Piotroski F-score >= 7.0
Beneish M-score < -3.0
HISTORICAL PERFORMANCE:
Look at the last 10 years of data, year over year for:
– Sales
– Earnings
– Book value
– Free cash flow
– dividends
– Return on equity
– Current ratio
– Debt / equity
– Net margin
– Inventory turnover
QUALITATIVE METRICS:
What does the company do (in one sentence)?
What is the company’s competitive advantage / moat?
Who are the primary competitors?
Is the company within my circle of competence?
Have I read at least the most recent earnings report?
Do I trust / like the management?
What should I be wary of with this company?
Does the company have a credit rating of at least BB?
What do I like about this company?
Does this company give me international exposure?
Will this company be around in 20 years?
If the stock market closed tomorrow for the next five years, would I still buy this company?
Do I already own companies in this sector?
Does the company treat its employees well?
Are insiders buying or selling shares?
Is the industry and company sustainable?
Is the company’s growth slowing?
Are analysts optimistic about the company?
Is the company a value trap?
Is the stock “screaming” cheap?
What is my exit strategy?