Five Characteristics Of AN EXCELLENT BusinessOn by
What makes a business great? This is one of the the key questions to ask when looking to invest your dollars in the common stock of a publicly traded company. Obviously, the purpose of any carrying on business is to generate capital where there is nothing before; i.e., generate profits. However, wish company is profitable today will not necessarily mean it’ll be profitable tomorrow. Good investments are made in companies that can sustain profitability over a period, and aren’t susceptible to swift and painful loss of business.
1. Recurring Sales A proven way to guard against an abrupt loss of business is to employ a recurring income business model. You’ll find so many examples of this: consumable products (food, beverages, toiletries, etc.), subscription media, open-ended prescription drugs, business services such as outsourcing payroll, consumer services like cable TV and broadband internet, etc.
All of these businesses generate continuing revenues from customers with an annual or regular monthly basis, and are also definitely not reliant on the product being the “hot” item at the moment. Conversely, there are lots of businesses that must constantly compete to earn business, and after earning it, they rarely see more sales to the same customer. One SECRET example of this is LCA-Vision (LCAV), which gives laser eye correction surgery. It’s fairly unlikely that a lot of customers will require (or want) to have their vision corrected double!
2. Scalability at Low Cost Growth is an essential aspect to consider, but the expense of growing is very important to the best outcome. Truly great businesses can increase income without spending a lot to do so. Take, for example, eBay (EBAY). This is a company that does nearly all of it’s business on the internet, and connects customers and retailers jointly essentially. Once the servers, databases, and software were set up, eBay could accommodate bigger numbers of customers without spending much of anything ever!
This is scalability at low priced. Compare this to the airlines, a bad business notoriously. For the airlines to grow revenues, they need to add routes. Adding routes requires substantial capital spending for new planes, international airport space, regulatory privileges, and so forth. Growing revenues is an extremely expensive proposition – airlines cannot level without spending big money to do so. Clearly eBay’s way will be a lot better! 3. High Return on Invested Capital Consider what your goal is when you invest in a stock, or a shared fund, or a bit of real estate.
- Measure improvement
- Allows for “Non Developers” to create them due to the simple to use interface
- Click Ok, and now the end day has been shown
- Think outside the container / are creative
You want for high earnings on your initial investment, right? The same pertains to businesses. Simply put, businesses make investments capital to earn a return. A business that can earn an increased return on the capital it invests is a better business. Most SECRET companies earn comes back of 30% or higher on spent capital.
This point is core to the SECRET display screen. The mantra of the SECRET Investing strategy is “good companies at cheap prices”. The “good companies” part is assessed by come back on invested capital. The airlines vs. eBay example is applicable as well here. For every server eBay buys, they can earn a substantial return on that investment.