It’s a given fact that to know more about a company’s business, you need to grill management a lot. This can happen only at concalls (which are conducted by majority of companies quarterly but the questions are limited to few) or at AGMs. Not alone does it help it to make an investment decision but it also helps you to decide whether a business has MOAT to stand strong in tough times.
The following are few questions one should ideally ask mgmt when interacting with them. Of course, the same will go for a change w.r.t to industries like BFSI.
Revenue related:
1. What has been the most notable trend among your customers over the past year?
2. What is your competitive advantage and why do customers buy from you? What is the revenue recognition policy of the company
3. Who are some of your top customers? How much does top 10 contribute to revenue? Are you able to serve them as well as you would like? What would be the impact on business if they were to leave suddenly.
4. What are the various line of activities company undertakes. How much does each contribute too? Has your customer base changed over the last year? If so, how?
5. How many customers are repeatable? How effective is the retention rate of such customers?
6. What is the order book of the company? How much of this order book convert into revenue in the coming year? Any new big orders won by the company or has company participated in any recent tenders?
Expense related:
7. What are the risks associated with the sourcing of raw material, or holding the line on costs of services? How has the pricing on raw material being? Are you able to pass on price increase to your customers?
8. What would be the impact on costs of sourcing inputs in case of competitive pressures?
9. What is the turnover rate at your company? How does that affect your profitability when you factor in training and hiring cost? Is there Succession plan in place? Do your employees feel part of your company? Are they given ESOP’s?
10. What percentage of total cost is fixed cost? What has being the trend. How will it be in coming year? Is it in line with industry/competitors? Any one time cost incurred by the company during the year? Was it budgeted?
Balance Sheet related:
11. What is the best use for the cash on the company’s balance sheet? Is the company planning to raise capital in order to fund future growth? Why is the company not returning back the funds as Dividends or buyback to shareholders in case it’s not put to best us?
12. Why is the company not borrowing funds to leverage its return? Is the company unable to obtain loans? If so, why
13. How is the working capital cycle looking for the company? Why is loan borrowed by company to meet working capital needs? Is the company facing liquidity crunch.? Bad debt policy of company and run rate maintained?
14. What are the intangible assets not capitalised in books which is crucial to the company? What security measures exists to protect such IP if any? Ballpark value of such intangibles?
15. What is the present capacity of the company.? How much of it is utilised? What are the projected capex to be incurred by the company? How would it impact the topline?
16. To what extent does new disruptive technology impact the business? What are the technology adopted by the company? How much is spent on R&D by the company?
Others
17. What part or aspect of the business is giving you the most trouble now?
18. What is the average monthly cash burn? Is expenditure and income broadly in line with the budget? (+ 10%) In case of variance, are they satisfactorily explainable?
19. What are the other business scope which is currently being ignored but which has huge potential for the company? What are your plans on those? Who are your key competitors?
20. If there is any contingent liabilities in the Annual Report, do ask for nature of the same as well as status and will it be provided by company?
Few of the above questions needs to be linked with each other to get a holistic picture. But do your homework by knowing abt company through their Annual Reports as well as website before you grill them.!
Contra Invest 