INVESTMENT EVALUATION

To achieve differentiated results a differentiated approach is required. Often our ideas run counter to popular opinion but so do our results.
We adhere to a comprehensive and systematic process every step of the way.

 

The following illustrates part of our process:

EVALUATE THE BUSINESS MODEL

We don’t like confusing or complicated business models. If a business model is complicated it’s generally because it possesses many dependent variables, when many dependent variables exist more things can go wrong, and most of the time they do. We have a 9-page checklist to determine the quality of a business’s operations.

DETERMINE THE QUALITY OF THE COMPANY’S FINANCIAL STATEMENTS

When reporting financial results, there is often a gap between what is legally permissible and what is “right.” Common sense illustrates this: How is a company with billions in revenue able to forecast – to the penny – how much it will earn three months from now and then actually earn that amount? We employ a 6-page checklist to determine the quality of a company’s financial statements.

CONDUCT QUANTITATIVE ANALYSIS

Countless spreadsheets and software are available to calculate anything someone might want to know about a company. However the quality of data used is what separates successful analysis from unsuccessful analysis. In other words, lousy inputs generate lousy outputs. We have 14 ways we “scrub” our input numbers to ensure we’re using high-quality data.

EVALUATE THE PROSPECT’S INDUSTRY AND ITS PEERS

The relationship between a company’s profitability and its industry is both causal and correlated, so we want to understand the industries in which our companies operate. Further, industries and companies go through a lifecycle and each stage has advantages and disadvantages, as well as threats and certainties; all of which have financial implications. Therefore, we want to understand where a prospect and its industry are within their lifecycle and what the financial implications might be.

ESG ANALYSIS

Global Return has developed a proprietary method for evaluating and ranking ESG practices used by companies. This evaluation process is used to identify risks within a company’s operations and governance, and to ensure these risks are factored into our valuations.

DETERMINE INTRINSIC VALUE

The significant questions we need answered are:

1) How many dollars do we have to invest to receive one dollar of free cash flow?

2) How certain is this cash flow to continue into the future and at what rate might it grow?

3) How is management going to reinvest retained cash flow and at what rate of return?

4) How large is the market opportunity that management can reinvest into?

5) How quickly are we going to receive back our original investment, such that all remaining free cash flow is our return on investment?