THE HOW TO MEASURE SUCCESS EDITION
7 JUNE 2012
How Do Successful Business Owners Measure Success?
Successful business owners are constantly evaluating the performance of their companies, comparing it with the company's historical figures, with that of the company's competitors, and even with the performance of successful businesses from other industries. To complete a thorough examination of a company's effectiveness, however, one needs to look at more than just easily attainable numbers such as sales, profits, and total assets. You must be able to read between the lines of financial statements and make the seemingly inconsequential numbers accessible and comprehensible.
Luckily, there are many well-tested ratios out there that make the task a bit less daunting. Comparative ratio analysis helps you identify and quantify a company's strengths and weaknesses, evaluate its financial position, and understand any risks you may be taking by investing in it.
This is where StockCentral’s Ratio Analyzer comes in handy. The Ratio Analyzer looks at the most common balance sheet and financial ratios, then explains in plain English where a company is doing well, or perhaps falling behind. And it couldn’t be easier to use — just enter a ticker symbol and view the color-coded results. We have a helpful user guide that will give you more details as well.
Many StockCentral members make it a point not to invest in any stock before they review it in the Ratio Analyzer. Try it today!
LKQ Corporation Keeps Rolling Along
On May 22, 2012, auto parts company LKQ Corporation changed its ticker symbol from LKQX to LKQ as a result of its move to the New York Stock Exchange. If you follow LKQ Corporation in Toolkit 6, be sure to manually change the ticker in the company record to the new symbol to download data and updates and prices. To change the symbol, open the stock study in your Toolkit 6, then click the Data icon on the company toolbar. In the Basic Data tab, change the ticker, then click OK. Save the study to preserve the change.
The news about the ticker symbol made us take another look at LKQ. According to Take Stock, LKQ is at the top of the Roster of Quality Companies. It has a perfect 10 for quality, very consistent EPS and sales growth, and pre-tax profit margins stable to rising in the past five years.
On the StockCentral message boards, member Lynn Brown states about LKQ “I have been checking for intangible asset ratio lately to assure company has less than 20%. Unfortunately, LKQ has 50%.” The Investor Advisory Service chimed in with a note from the June 2012 issue: “We remain concerned that margins continue to slip. Some of the margin decline is caused by the increased reliance on acquisitions, which brings both revenue and higher costs in the form of intangibles amortization and interest expense. Even excluding these items, there is a decline in profit margins. While we like the company’s philosophy and its growth, we will continue watching its profit margins.”
With nearly straight-line EPS growth in the past decade, there’s a lot to like about LKQ. What’s your take on the stock?
Read more and post your comments on StockCentral.com.
In Search of Corporate Excellence
History shows that the best-run companies are the ones that last for decades, delivering profits to shareholders consistently. These are exactly the kinds of companies you should hold in your personal or investment club portfolio.
But how do you find excellent companies?
StockCentral's Roster of Quality Companies is one place to start. Each week, StockCentral publishes a list of all publicly traded U.S. companies that meet a set of minimum criteria for quality. "Quality" in our case is defined as:
— Consistent historical growth
— Strong historical growth
— Stable pre-tax profit margins
(For those of you familiar with BetterInvesting's Stock Selection Guide, companies that are highly rated for Quality will look great in Sections 1 and 2 of the SSG.)
As with any other automated stock screener, the Roster of Quality Companies doesn't know about current events — all it knows is the numbers. Occasionally you may see a company on the list that has been caught up in a current scandal or controversy that might prevent cautious investors from buying that stock. As the scandal's implications get memorialized in the company's future earnings reports, that stock would fall off the Roster of Quality Companies.
The Roster of Quality Companies is intended to be a starting point for finding new companies to explore. Many of the companies will not be reasonably valued at their current prices, but the tool is valuable nonetheless in the most important aspect of long-term investing — buying well-managed businesses.
See what companies make the grade in this week’s Roster of Quality Companies, exclusively for StockCentral subscribers!