Value Investor’s Checklist / Template

1. The business
a. What does the company do? You should be able to answer this question in less
than 2 sentences
b. Does the business have a competitive advantage? Describe them in the
categories below
i. Brand?
ii. Network Effects?
iii. Switching Cost?
iv. Low Cost?
v. Intangible Assets?
c. How durable is the competitive advantage? What are the risks to the current
(legacy) competitive advantage?
d. What is the company’s long term prospects and runway for growth?
e. Does the company require a lot of capital reinvestment to maintain its business?
Can it grow without any further reinvestment?
f. Does the business have favorable relationships (does it lead to a net benefit for
both parties) with the following:
i. Customers?
ii. Suppliers?
iii. Employees?
iv. Regulators? Community?
g. Is the company able to translate its moat into high returns on capital?
2. The financials
a. Does the company have enough cash to maintain its business?
b. Does the company maintain reasonable debt levels?
c. Can the company generate a strong amount of free cash flow from operations?
3. The management
a. Is management properly incentivized to protect shareholder interests over its
own? (i.e. is the company owned by someone who founded the company or
owns a significant portion of his / her net worth in the company)
b. Has management handled excess capital in a shareholder friendly way? Are
share buybacks and dividend payments appropriately timed based on current
price per share relative to value?
c. Is management open and honest?
4. Valuation
a. Is there a significant margin of safety?
b. Can I reasonably estimate cash flows into the future given what I know about the
business?
c. Is it possible that the downside risk here is unknowable and does margin of
safety provide an asymmetric risk reward ratio?