Supply – How to find quality businesses

Compounder, Moat, Scale Economies, Value Creation

What differentiates a good business that earns a long-term above-average return from a mediocre business that, at best, only earns a return close to its cost of capital? A good business can control its supply while a mediocre business can’t.  Take Ferrari. Ferrari has a 24% operating margin with above-average return on capital, higher than […]

Is Dividend the Right Strategy for You?

Compounder, Dividend, Value Creation

Since 1930, dividend has been responsible for 42% (on S&P 500) of the stock market return so there’s little surprise that it is one of the main criteria we look for when picking stocks. However, in investing, everything involves an opportunity cost. So the question to ask is – Is focusing on dividend as a […]

Growth rates, ROIC & Multiples

Value Creation

This is a simple table that shows the ‘appropriate’ multiples i.e P/E or EV/EBIT given a level of constant growth rate & return on invested capital (ROIC) using a 10% cost of capital or discount rate. PDF: Horizontal is the ROIC rate whereas growth rate is on vertical. Please do not use this for […]