1. Risk of bankruptcy Assessment.
Basically I will ignore those companies that have very unhealthy and unsustainable financial statement -
(a) Balance sheet - If the receivable amount is as high as the borrowing amount, and
(b) the receivable amount is more than 1.5 quarter revenue, and
(c) Negative cash flow (in cash flow statement) for several quarters.
then the risk of bankruptcy is very high.
2. Future prospect: Hopeful and hopeless business.
Hopeless business are those revenue is declined due to the reduction of the demands due to:
(a) New products that is going to replace it (e.g. pendrive / harddisk vs CD/DVD; lighten vs match),
or
(b) The change of habits/requirements to fulfill the needs (i.e. online shopping vs offline shopping)
Hopeful business are those products are demanded due to the change of habits/demands.
(a) Hygiene awareness causes more demands on hygiene related products e.g. gloves, masks, PPE.
(b) Work from Home - new demands on home-based working related furniture.
3. Pricing: Over-valued or Under-valued.
Normally it depends on your desired ROI (return of investment), and whether you can grab the opportunity when Mr Market over-reacts with the so-called "news".
For me, as long as
(a) dividend return is predictable and more than fixed deposit, or
(b) the potential capital gain is more than 20-50% (e.g. PE is only 5).
Anyway, investment depends on intuitive and previous experiences as well. Thus, these checklist or guidance is a just tool for me to make a more consistent and holistic decision to increase the rate of success.
Written by: Xaivier Chia
P/S: The above sharing is solely based on personal insight and information that believed to be reliable. Your valuable feedback are very welcome.
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