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Coca-Cola's Checklist |
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Other Considerations | ||||||
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Buy the Stock? | ||||||
1. |
Checklist — the Coca-Cola Company |
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Company |
Yes |
No |
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Do you really understand the business? |
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Does the company have a cost advantage? | |
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Is the product superior — actual or perceived? | |
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Are there barriers to entry in the industry? | |
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Is the industry an oligopoly (only a few competitors)? | |
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Are the company's advantages sustainable? | |
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Management |
Yes |
No |
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Do the managers own a lot of stock? Are they buying more for themselves? (If they're selling, be wary) |
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Do they have a vision, and a strategy to realize that vision? | |
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Are they paid fairly? | |
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Has the stock outperformed its competitors during their tenure? | |
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Is the Board of Directors predominantly comprised of independent, highly capable members? | |
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Do you trust the management with your money? Are the managers focused on creating shareholder value? | |
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Stock |
Yes |
No |
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Has the earnings per share (eps) growth been stable? (last 10 years vs. last 20) |
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Are eps estimates rising? | |
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Is the free cash flow positive after deducting dividends? | |
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Is the company repurchasing shares? | |
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Is the stock out of favor on Wall Street? | |
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Is the expected ROI attractive to you? | |
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Checklist — Advanced |
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Company |
Yes |
No |
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Is the pretax margin higher than its competitors? |
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Has the pretax margin been rising over time? | |
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Has the R&D ratio been rising, as well? | |
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Has the SG&A ratio been declining? | |
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Is the interest coverage ratio above 3? | |
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Have accounts receivable and inventories been rising less than or equal to sales growth? | |
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Has sales growth been reasonably close to earnings growth? | |
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Have sales and earnings growth come primarily from internal growth (rather than from acquisitions)? | |
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Have "non-recurring" charges been few and far between? | |
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Management |
Yes |
No |
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Has the compensation of the top five managers accounted for < 10% of pretax income? |
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Have company options accounted for less than 10% of pretax income? Has the company avoided the questionable practice of repricing options when the stock price declined? | |
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Is the Chairman of the Board an outside board member? | |
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Have there been no disagreements with or changes of auditors? | |
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Stock |
Yes |
No |
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Is the 10-year RORE greater than 20%? |
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Has the RORE been rising (5-yr > 10-yr)? | |
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Is the operating free cash flow positive after dividends? | |
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Is the operating discretionary cash flow significant? | |
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Is the P-E (adjusted for goodwill) attractive to you? Relative to the average P-E of the S&P 500? | |
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Suggestion: Go to The Buy Side |
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