Hi a few simple tricks I use while checking the firm

-is the firm held by the promoter directly or through a holding firm. If it is through a holding firm and that is privately held, it is difficult for us to know about it and it is a minus.

-what are related party transactions - if there are sales subtract the related sales,if costs add the costs then take the adjusted intrinsic value

-has the company given any deposits or taken loans from subsidiaries or holding companies

-does the company pay a very large royalty to parent firm just like that

-is the promoter salary ex of dividend {because this is shared with shareholders} rising faster than profits

-who are the independent directors are they on reputed firms.

-is the promoter a page 3 type, big minus though this is my personal view

-is the promoter unnecessarily pledging shares and is interested in real estate

-have they been fined for frauds etc in watchoutinvestor database.

-is the company involved in government projects etc especially in states like Bihar, North East etc

-type company and promoter name with words like problem, fraud, default etc type negative adjectives in google

-check equitydesk old threads

-does the management suffer from title inflation. For example does everybody have a title starting with Chief or President. For e.g in Pantaloon they had a Chief Belief Officer who used to tell ACK stories

-is the company giving dividend even when debt is high (e.g HCC}

-does the promoter focus more on capital structure timepass rather than improving operations e.g Munna Mobile

 

unfortunately none of these would help us with Satyam types, but I guess someting is better than nothing. And after some time this does not take more than 15 mins per company guaranteed.

Oh ya title inflation is quite common. if the person is heading a separate P&L or spinoff and reporting directly to CEO the chief stuff is ok , otherwise the company does not have a mind of its own and as Charlie Munger said it is unlikely to be candid in other areas especially reporting poor financial performance.

A more general example , I was watching an old video of Britains Got Talent a music show, one of the very good guys was a Michael Jackson duplicate. At least in India we call them duplicate especially of film stars. He was introduced as a tribute artist .

Coca Cola now has a Chief Blogging Officer.Some more stuff here

 

some more promoter / manager check items that might be useful

-what is the salary of the top guys as a % of total manpower expense

-what is the % of total salary in equity at reasonable option prices, higher is better i.e more equity, less cash

-calculate the salary with stock options as an expense, this will change automatically from IFRS next year but even then for the moment it should be added

-unnecessary loans being given by company to promoters/mgmt

-how many of the guys are organically growing with the company, how many of them are fly in fly out types etc

-is the company registered in tax havens like- e.g Jet Airways for some strange reason is listed in Isle of Man. Mauritius can be excluded because we have some specific tax advantages that allows companies from there.

-is the auditor changing every year (from Alok Bholaji's excellent observation on Micro Technologies.

this is of course a list that I use, might not work for everyone so pick choose what you guys think works.

vinvestor2010,

 

What's wrong with govt projects in Bihar ,NE? Glodyne Technoserve has a large e-gov project from Bihar govt. The stock is in a solid long term uptrend. should this stock be avoided?

 

Munna Mobile - who's that?