Quality Assessment

Research - Quality Assessment

Great business models sustain an above average Return on Capital (ROC) for an extended period. Businesses that deliver excellent returns will subsequently face competition from new companies trying to gain market share in their industry or sector. A great business knows how to combat external market penetration and sustain a high ROC.

There are three parts to our Quality Assessment framework:

Quality Assessment is based on the experience and expertise of the investment team in identifying first-class businesses for investment opportunities. We believe that the attributes of a successful business are readily identifiable and that investing in these businesses during the early stages of their development will deliver a healthy return on investment for our clients.

This assessment is vital part of our investment process as is information gained from our extensive company visit program will help us gain a thorough understanding of their true investment potential. Our aim is to grade each company from A to D depending on their profitability.

There are 12 sub-tests incorporated within the above three categories and each company is scored out of five. The outcome is comprehensive evaluation and grade for each stock we have reviewed. Grade A stocks have the greatest potential to sustain their superior returns on capital over an extended period of time. In an ideal world, new investment opportunities should maintain their return on capital figures.

Management is crucial to our analysis. Our company visit program is a key component of the process as we conduct a well-versed discussion with the upper echelons of their management structure, in order to ascertain whether or not their business model is sustainable. We are looking for fastidious management skills and particularly focus and drive. It is in our interest to fully understand their corporate strategy, whether the management will sustain or dilute the returns, and lastly whether they the mindset of a shareholder or an employee?

Our all-encompassing appraisal of a business's sustainability will involve evaluating the business value proposition, the point of differentiation of the product or service, the potential for price erosion, an assessment of current and potential competition within the marketplace and the cost base of the business. Financial Return refers to the amount of capital invested in the business versus the earnings visibility and inevitability of those earnings in the future, also taken into consideration is the ability of the company to sustain or improve the current return on capital.

Market Summary