Above framework can be used as a screener. I normally try to find companies which have good scores based on this framework. Once I do that and have bunch of stocks, I do the qualitative analysis on them which includes analysing growth potential, quality of management, any major corporate governance issues, guidance etc.
The other way it can be used to see how do the scores look like for companies you have in mind which have huge growth potential. If they have scored poorly but if you still have conviction, you can choose to ignore the poor scores and still invest in those stocks.
These screens will basically allow you to avoid companies which have low ROCE, huge debts, low debt paying capacity, huge proportion of sales required to cover fixed and variable costs. Such companies in the bull run may do good but as the situation gets worse, they are the ones who will be more fragile than others.
Hope it helps.
| Subscribe To Our Free Newsletter |
