INVESTMENT CHECKLIST

Compiled by Venkatesh Jayaraman (@VenkateshJayar2)

Contributed by @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

1 THANKS TO ALL CONTRIBUTORS

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 in this presentation.

MANAGEMENT

• Promoter Holding
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
• How promoters managed the worst times?
• 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 from Annual Reports
• What is the reputation of management among creditors, workers, suppliers and lenders?
Venkatesh Jayaraman (@VenkateshJayar2)
 • 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
• What is their approach? Long term or short-term focus.
• Investment in group companies
• How many years are they in Business?
FINANCIAL RATIOS

Balance Sheet • Liquidity Ratios – Current and Quick ratios

2
Income Statement
Cash Flow Statement
• Solvency Ratios – D/E and Interest Coverage Ratios
• Book Value
• Long term and short-term advances
• Operating Margin
• Earning Per Share
• Profitability ratios
• Extraordinary items
• 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
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!

Venkatesh Jayaraman (@VenkateshJayar2)

 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

3 • 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?
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?
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
Venkatesh Jayaraman (@VenkateshJayar2)
 • 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
4 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.
• 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
https://www.valueinvestingworld.com/2019/01/final-decision-checklist.html

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)