Check List for Research.

Check List for reviewing a stock as a potential Compound Income investment.

  1. The Business – What does it do, can you understand it, strengths and weaknesses, geographic exposure, sector, growth, cyclical or defensive?
  2. Size – Market Capitalization / Enterprise Value (EV) > £50m generally for me.
  3. Turnover – ratio to EV and what trend growth in recent years and forecast for next two years, steady growth or falls if so why?
  4. Operating Margin – How high and has it been rising or falling and what is driving change, have they been or are they able to cut costs?
  5. Return on Equity and Return on Capital Employed <5% bad, >10% good, is it a good quality business with an economic moat?
  6. Earnings – trend growth in recent years and forecasts for next two years, steady or volatile, up or down in trend?
  7. Dividends – trend growth in recent years and forecasts for next two years, have they been at least maintained and preferably increased.
  8. Dividend Cover – by earnings and cash flow, >1.5x and >1x ideally.
  9. Cash Flow - quantum, quality, accounting policies, recurring income or one off's, capital expenditure and working capital requirements, debt interest
  10. Financial Gearing (Net Debt / Cash) – to equity, to total assets and market capitalization.
  11. Operational Gearing - typically have high labour costs, heavy capital expenditure, high input or fixed production costs or needing to carry lots of stock.
  12. Debt to EBITDA – Moody's Aaa - A= 0.9 - 1.7x / Baa-B= 5.1x - 1.5x / Caa - C = 6.3x+
  13. EBITDA/Interest (Int. Cover) – Moody's Aaa-A 17x-8.2x / Baa-B 5.1x-1.5x / Caa-C 0.3x
  14. Other Liabilities – such as Operating Leases, purchase commitments, Pension deficits, warranties and earn outs or any other contractual obligations.
  15. Valuation Metrics – EV/ EBITDA, EBIT/EV, EV/Sales, P/B, P/E, Dividend Yield
  16. Management - Type (Manager / Empire Builder), capital allocation, share buy backs or issuance, experience, pay, shareholdings, Directors Dealings
  17. Shareholders - Family ownership? Institutional holders? Directors holdings? Short Interest? 
  18. Share Price Chart - Check three to five year chart for price trend / momentum or any big moves up or down which might require further investigation.
  19. RNS Announcements  - Review recent news and results and check any which coincide with big price moves
  20. Investor Relations and Company Website - visit these for more information and download Report and Accounts and presentations etc.
This list is not exhaustive, but I find it useful as a starting point for further research and as a way of not missing things when starting to evaluate a stock.