in sales for several years? He cautions against firms
that show big jumps due to anomalous events, like a temporary
shortage. Still, judge a company’s sales over several years
because even sales at outstanding companies may be somewhat
sporadic. Check on management regularly, to make sure
it’s still top-notch.
2. Is management determined to find new, popular products
to turn to when current products cool off? Check
what the company is doing in the way of research to come up
with the newer and better.
3. How good is the company’s research department in relation
to its size?
4. Does the company have a good sales organization?
Production, sales, and research are three key ingredients
for success.
5. Does the company have an impressive profit margin?
Avoid secondary companies. Go for the big players. The only
reason to invest in a company with a low profit margin is if
there’s powerful evidence that a revolution is in the offing.
6. What steps is the company taking to maintain or improve
profit margins?
7. Does the company have excellent labor and personnel
relations? A high turnover is an unnecessary expense. Companies
with no union, or a company union, probably have
good policies—otherwise, they would have been unionized.
Lots of strikes, and prolonged strikes, are obviously symptoms
of sickness. But don’t rest easy if a company has never
had a strike. It might be “too much like a henpecked husband”
(too agreeable). Be dubious about a company that pays below-
average wages. It may be heading for trouble.
8. Does the company have a top-notch executive climate?
Salaries should be competitive. While some backbiting is to
be expected, anyone who’s not a team player shouldn’t be
tolerated.
9. Does management have depth? Sooner or later, a company
will grow to a point where it needs more managers, ones with
different backgrounds and skills. A good sign: Top management
welcomes new ideas, even criticism, from below.
10. How good is a company’s cost analysis and accounting?
Management must know where costs can be cut and
where they probably can’t be cut. Most companies manufacture
a large variety of products, and management should
know the precise cost of one product in relation to others.
One reason: Cheap-to-produce products may deserve special
sales efforts.
11. Are there any subtle clues as to how good a company is?
If a company rents real estate, for example, you might check
how economical its leases are. If a company periodically
needs money, a spiffy credit rating is important. Here, scuttlebutt
is an especially good source of information.
12. Does the company have short-range and long-range
plans regarding profits? A company that’s too short-term
oriented may make tough, sharp deals with its suppliers,
thus not building up goodwill for later on, when supplies
may be scarce and the company needs a big favor. Same
goes for treatment of customers. Being especially nice
to customers—replacing a supposedly defective product,
no questions asked—may hurt in the short run, but help
later on.
13. Might greater growth in the future lead to the issuance
of more shares, diluting the stock and hurting
shareholders? A sign that management has poor financial
judgment.
14. Does management freely own up to its errors? Even fine
companies run into unexpected problems, such as a declining
demand for their products. If management clams up, it
may not have a rescue plan. Or it may be panicking. Worse, it
may be contemptuous of its shareholders. Whatever the reason,
forget about “any company that withholds or tries to
hide bad news.”
15. Does management have integrity? Does management require
vendors to use brokerage firms owned by the managers
themselves, or their friends or relatives? Does management
abuse stock options? Put its relatives on the payroll at specially
high salaries? If there’s ever a serious question whether
the management is mindful enough about its shareholders,
back off.
Read More : Fisher’s 15 Questions
