WHY DO SOME COMPANIES GAIN MARKET SHARE AND NOT PROFITS
Large companies want monopoly status; they want a moat to protect competitors from taking away their castle; moats can be established by propriety information (secret), experience, and innovative opportunities posed by customer interest; focus on the moat that is hardest to cross; the key is finding business with wide moats, first. The following five indicators suggest a wide moat: return on investment, sales growth rate, earnings per share, Book Value per Share, and Free Cash Flow. 10% for 10 years in all five categories is the rule. Return on investment capital is the rate of return a business makes on cash it invests in itself every year. First, ROIC is the percentage return you get back from the cash you've plowed into the business. A solid ROIC is an indicator that the mangers of the business are on the side of its owners. Next, sales are the total dollars took in from selling product or services. Sales growth indicates expansion opportunities are being capitalized. Equity is what is left over, if machines, supplies, and real estate were sold off and debts paid off. Next, Cash growth tells the investor whether the businesses cash is growing with its profits. Investors like real cash growth. Cash in the bank. Dividends are not preferred to growth in earnings, capital improvements, and market expansion. A dividend is a "pay-out of extra cash the business can't use effectively for growth". In summary, consistent number is what rule 1 is looking for and this makes for a good entry.
[Learn More ...]
&Links
