Investment Template for Value Investing

Use in conjunction with the free template downloads

This investment template for value investing can be used in conjunction with the free template downloads, available on this site, that calculate the internal rate of return (irr) for individual stocks.

The investment template provides a checklist of the important financial ratios and other financial information that are used in value investing to help determine stock value and to minimize risk.

Check off the following questions on the list below to ensure that any potential stock purchases answer the majority of the questions in the affirmative.

Tick or cross each question as you go.

Answers to most of these questions (but not all) should be available on good online broker's websites.

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Company Name/Ticker Code: ________________________________


Company Management:

• Is the return on equity (ROE) stable or increasing over the last three to five years?
• Is the current ROE 15% or greater?
• Is the earnings stability greater than 75%?
• Non-financial stocks: Is the return on capital (ROC) stable or increasing over the last three to five years?
• Is the current ROC 10% or greater?
• Do you have positive qualitative information and opinions about the company management and the company operation?

Growth Characteristics:

• Has the sales per share (SPS) increased by 5% per annum over the last five years?
• Has the earnings per share (EPS) grown by 10% per annum over the past five years?
• Is the operating margin above average for the sector and has it remained steady or increased over the last five years?
• Is the profit margin above average for the sector and has it remained steady or increased over the last five years?
• Is free cash flow strong and increasing over time?

Company Size:

• Is the market capitalization greater than $1 billion?

Debt Management:

• Has the debt to equity ratio been below 50% over the last three to five years?
• Has the interest cover been greater than 2.0 over the last three to five years?
• Is long-term debt no greater than four times net profit?

Liquidity Ratios:

• Has the current ratio been greater than 1.5-2.0 over the last three to five years?
• Has the quick ratio been greater than 1.0 over the last three to five years?

Payout Ratio:

• Has the payout ratio been relatively stable over the past three to five years?

Relative Valuation - Price/Earnings (P/E) Ratio:

• What are the highest P/Es for the last three years: __________________ ?
• What are the lowest P/Es for the last three years: __________________ ?
• Is the current P/E high or low compared to past levels?
• Or alternatively, how does the current P/E compare to the average annual P/Es over the last few years?

Absolute Valuations:

• Do one or more stock valuation methods (independent of the stock price) that estimate intrinsic value provide a margin of safety between the calculated intrinsic value and the stock price?

To Conclude

The investment template encapsulates many of the aspects of a company's operation that together help to determine whether the company is a sensible investment opportunity from a value investing perspective.

Many of these aspects can be quickly ascertained from an online brokers website. Others such as estimating intrinsic value need to be determined elsewhere.

The use of the template should assist in minimizing investment risk and support the value investing approach advocated in this website.

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