1. Past Business Performance

One quick way is to look at a company’s past business performance.

Try taking a full economic cycle of 5-10 years into consideration when looking at a company’s business performance (or at least for the past 3 years). Watch out for the following warning signs:

Not profitable business (Low Return on Equity) Fluctuating Profits over the years (A sign of weak business model and lack of consistency) Negative Free Cash Flow (Persistent negative FCF will mean they require capital from borrowings or equity – rights issue) Business has too much debt (High Debt-to-Equity ratio)

Read also: https://www.smallcapasia.com/learn-5-golden-rules-master-investors/

2. Evaluate the Business Model

In order to understand a company’s strategy and how it drives profits and losses, it is essential to thoroughly understand the current business model.

Companies exhibiting the following tendencies are potential capital killers:

Hard to understand or damaged business model (What is exactly the...