The Motley Fool's Rule Maker Essentials
There seems to be some perverse human characteristic that likes to make easy things difficult. - Warren Buffett We Fools love Mr. Buffett's pithy quotes. Is it a coincidence that Buffett -- one of the most successful investors of all time -- hails not from Wall Street, but from America's heartland -Omaha, Nebraska? We think not. Buffett shuns Wall Street's bewildering ways. And, so should you, Fool. Buffett's success is the result of his rational assessment of businesses. Believe it or not, finding great companies is not complicated! Easy -- no; but, simple -- yes. If you're new to Rule Maker investing, this spreadsheet is for you. By inputing some basic financial data and answering a few questions, you'll quickly be able to tell whether a company is a cash-generating, industry-dominating, wealth-creating powerhouse -- what we call a Rule Maker. Directions: We've identified 11 general attributes of Rule-Making companies. Part 1 covers five qualitative aspects of a business. For each of these, the scoring is simple -1 point if the attribute is met, 0 points if it's not. Part 2 covers six financial criteria. Since these are more objective, each is worth 2 points if met, 0 points if not. Altogether, that's 17 possible points. Got it? If so, pick a company to analyze and let's get started! *Note* Rule Maker analysis is primarily for companies with at least $1 Billion in annual sales.
Part 1: Evaluating the Biz -- Answer honestly! It's either 100% yes, or else no. 1) Dominant Brand -- Is the company the standout category king within its industry? 2) Repeat Purchases -- Do customers return for purchase at least once a month? 3) Convenience -- Within its industry, is the company's product/service accessibility and convenience the best ? 4) Expanding Possibilities -- Can you answer "yes" to the following two questions? a) Do your friends know about and use the product/service? b) Is worldwide expansion believable for their stuff? 5) Your Familiarity & Interest -- Are you a user of the company's products or at least very familiar with them? Answer Choose Choose Choose Points
Choose
Choose
Part 2: Company Financials -- Fill in the cells outlined in blue. The spreadsheet will crunch the numbers. *Important Note* -- When evaluating quarterly (10-Q) results, use the year-to-date income statement data. For example, if a company is 3/4 of the way through its fiscal year, use the full 9 months of info. Hey Fool! Put your cursor right HERE Finding Financial Data Income Statement: Sales Prior-year Sales Cost of Goods Sold Net Income Balance Sheet: Cash & Equivalents Current Assets Current Liabilities Short-term Debt
Long-term Debt Cash Flow Statement: Operating Cash Flow Capital Expenditures Our Standard 6) Sales Growth > 10% Actual Result
Calculation Sales Pr. Yr. Sales (Revenue - COGS) Revenue Net Income Revenue Cash & Equivalents (ST Debt + LT Debt) (Current Assets - Cash & Equiv.) (Current Liab. - ST Debt) (Operating Cash Flow - Cap. Ex.) Revenue
Points
7) Gross Margins
> 50%
8) Net Margins
> 7%
9) Cash-to-Debt Ratio
> 1.5 or No Debt < 1.25
10) Foolish Flow Ratio
11) Cash King Margin
> 10%
Total Score =
Rule Maker Beginners board Finished? Don't forget to save! Want to Modify this Sheet? Last Updated on April 3, 2000
Results as of Most Recent SEC Filings on 4/3/00
KO Business Basics 1) Dominant Brand 2) Repeat Purchases 3) Convenience 4) Expanding Possibilities 5) Your Familiarity & Interest Company Financials 6) Sales Growth 7) Gross Margins 8) Net Margins 9) Cash-to-Debt 10) Flow Ratio 11) Cash King Margin Total Score 1 1 1 1 1 0 2 2 0 2 2 13 MSFT 1 1 1 1 1 2 2 2 2 2 2 17 GPS 1 1 1 1 1 2 0 2 0 2 0 11 INTC 1 1 1 1 1 2 2 2 2 2 0 15 CSCO 1 1 1 1 1 2 2 2 2 2 2 17 SGP 0 1 0 1 1 2 2 2 0 2 2 13 PFE 1 1 0 1 1 2 2 2 0 0 0 10
YHOO 1 1 1 1 1 2 2 2 2 2 2 17
TROW 1 1 1 1 1 2 2 2 2 2 2 17
JDSU 1 1 1 1 1 2 0 0 2 0 0 9
NOK 1 1 1 1 1 2 0 2 2 2 0 13