1. Least Cap. Exp. So there Least Borrowing .. High capex is not good for long run
2. Least Borrowing -- NO future expenses which is not calcuated yet
3. Return On Capital Employed : ROCE > 25%
4. Dividend & it should be compounding
5. Keep portfolio less then 10 Stock.
6. Focused Management
7. ROE (Return On Equity capacity) > 25% - ( Net Profit / Avarage equity ) - Avg.Equity = Share capital + Res. & surplus
High ROE indicate that Business is capable of generating Cash internally thus lesser needs on Debt (External)
NOTE: ROE can be boosted by taking debt (you can fund assests with debt that lowers the equity) So even if ROE is rising you should look on how debt is growing.
Look out for Companies
1. Whose ROE is high & Rising
2. Zero, Low or falling Debt
8. Debt Burdan ratio (DFC - Debt to Free cash flow)
debt burdan is better then debt to equity.
Generally 3 is good. as it says company can pay off debt in 3 years with current cash flow.
Debt = Long term borrowing + short term borrowing
Free cash flow = Net cash flow - purchase of Fixed assests
9. Creditors day ( how much time comapny takes to pay money back to creditor)
(Trade Payable / Sales)*365
Some time higher sustained no is good as it say than company don't have to pay off immidiately
