This checklist provides a systematic approach to evaluating investment opportunities. These 15 steps are organized into three core analytical elements: Business Analysis, Financial Analysis, and Market Analysis. Want to gain deeper insights? Subscribe and download our extensive Quality Growth Framework.
I. Business analysis
1. Understand the business model
What is it?
Understanding how a company makes money is fundamental to any investment decision. A clear business model analysis helps identify revenue drivers, cost structures, and competitive advantages.
Key components
- Primary revenue sources and channels
- Customer segments and target markets
- Cost structure (fixed vs. variable)
- Distribution strategy
- Key partnerships
- Pricing power and strategy
- Value proposition
Practical example
Netflix’s business model: Subscription-based revenue (eliminating advertising dependence), scalable digital distribution, content creation and licensing mix, global market reach, data-driven content decisions. Strong pricing power demonstrated through successful price increases while maintaining subscriber growth.
2. Evaluate industry position and growth
What is it?
Understanding the industry context helps assess the company’s growth potential and competitive challenges.
Key components
- Market size and growth rate
- Industry structure and dynamics
- Regulatory environment
- Technological disruption potential
- Geographic considerations
- Market share trends
- Growth drivers and inhibitors
Practical example
Electric Vehicle Industry: $500B+ global market growing at 25%+ annually. Key drivers include government regulations, decreasing battery costs, improving technology, and consumer preferences. Tesla holds dominant position but faces increasing competition from traditional automakers and new entrants.
3. Analyze management
What is it?
Management quality can significantly impact investment returns. Focus on track record, incentives, and strategic execution.
Key components
- Leadership experience and background
- Track record of execution
- Capital allocation history
- Compensation structure
- Insider ownership
- Communication transparency
- Corporate governance
Practical example
Microsoft under Satya Nadella: Successful pivot to cloud computing, strategic acquisitions (LinkedIn, GitHub), strong capital return program, clear communication of strategy, significant insider ownership, and proven execution of digital transformation.
4. Assess competitive advantage (Moat)
What is it?
A sustainable competitive advantage protects market share and profitability over time. Want to know more about moats? Read more: How to spot a moat
Key components
- Brand strength
- Network effects
- Switching costs
- Scale advantages
- Patents/IP
- Regulatory barriers
- Cost advantages
Practical example
Visa’s competitive moat: Network effects (two-sided market between merchants and consumers), high switching costs for banks, strong brand trust, regulatory compliance expertise, and significant scale advantages in payment processing.
5. Review company documentation
What is it?
Official documents provide crucial insights into risks, strategies, and financial details.
Key components
- Annual reports (10-K)
- Quarterly filings (10-Q)
- Earnings call transcripts
- Investor presentations
- SEC filings
- Press releases
- Proxy statements
Practical example
Reading Amazon’s 10-K reveals: AWS profitability details, shipping costs impact, investment priorities, risk factors (competition, regulation), and segment-level performance metrics.
II. Financial analysis
6. Analyze balance sheet
What is it?
The balance sheet reveals financial health and structure through assets, liabilities, and equity.
Key components
- Asset quality and composition
- Debt levels and structure
- Working capital efficiency
- Liquidity metrics
- Capital structure
- Off-balance sheet items
- Intangible assets
Practical example
Apple’s balance sheet strength: $200B+ cash position, minimal debt, strong current ratio (>1.5x), clean receivables, and efficient inventory management.
7. Review income statement
What is it?
Income statement analysis reveals profitability trends and operational efficiency.
Key components
- Revenue growth and quality
- Margin trends
- Operating leverage
- Expense control
- Earnings quality
- Tax efficiency
- Extraordinary items
Practical example
Google’s income statement: Consistent 20%+ revenue growth, stable 30%+ operating margins, high R&D investment, minimal one-time charges, and strong earnings quality with cash flow conversion.
8. Examine cash flow statement
What is it?
Cash flow analysis reveals actual money generation and capital efficiency.
Key components
- Operating cash flow trends
- Free cash flow generation
- Capital expenditure needs
- Working capital changes
- Financing activities
- Dividend sustainability
- Cash conversion cycle
Practical example
Coca-Cola’s cash flows: Consistent operating cash flow generation, high free cash flow conversion (>90%), stable dividend coverage, and minimal maintenance capital requirements.
9. Calculate Key Metrics
What is it?
Financial metrics enable comparison across companies and time periods.
Key components
- Return on invested capital (ROIC)
- Return on equity (ROE)
- Profit margins
- Asset turnover
- Working capital efficiency
- Debt ratios
- Growth rates
Practical example
Visa’s metrics: ROIC >30%, operating margins >60%, minimal capital requirements, consistent revenue growth >10%, and strong cash flow conversion.
10. Study historical performance
What is it?
Historical analysis reveals performance patterns and management execution through cycles.
Key components
- Long-term growth trends
- Margin sustainability
- Return stability
- Capital allocation
- Cycle performance
- Risk factors
- Market share trends
Practical example
Johnson & Johnson: 60+ years of dividend growth, stable margins through cycles, consistent ROIC >15%, proven recession resilience.
III. Market Analysis
11. Analyze market position
What is it?
Market position analysis assesses competitive strength and growth potential.
Key components
- Market share trends
- Competitive dynamics
- Industry concentration
- Entry barriers
- Pricing power
- Geographic presence
- Growth opportunities
Practical example
AWS (Amazon Web Services): 32% cloud market share, leading position in most regions, high barriers to entry, strong pricing power.
12. Review analyst coverage
What is it?
Analyst research provides valuable market perspective and highlights potential blind spots.
Key components
- Consensus estimates
- Growth projections
- Price targets
- Rating distribution
- Key debates
- Risk factors
- Catalysts
Practical example
Tesla analyst coverage: Wide range of price targets reflecting uncertainty about growth rates, margin sustainability, and competition.
13. Check historical valuation
What is it?
Historical valuation patterns help identify whether current valuations are reasonable.
Key components
- Multiple analysis (P/E, EV/EBITDA)
- Relative valuations
- Cycle analysis
- Growth-adjusted metrics
- Risk premiums
- Industry comparisons
- Market sentiment
Practical example
Microsoft’s P/E range: 15-35x over past decade, current 30x reflects cloud growth premium, consistent premium to market due to quality and growth.
14. Peer comparison
What is it?
Peer comparison provides context for valuation and operational metrics.
Key components
- Operational metrics
- Valuation multiples
- Growth rates
- Margin profiles
- Return metrics
- Balance sheet strength
- Market perception
Practical example
Payment processors (Visa vs. Mastercard): Similar margin profiles (~65%), comparable growth rates (10-15%), similar valuations (25-30x P/E).
15. Investment timeline
What is it?
Matching investment horizon with company characteristics and valuation is crucial for success.
Key components
- Time horizon factors
- Portfolio fit
- Risk assessment
- Position sizing
- Review triggers
- Exit criteria
- Rebalancing needs
Practical example
Growth stock investment: 3-5 year horizon to allow business model maturation, quarterly review of growth metrics, position sizing based on risk tolerance.
What’s next?
This 15-step framework provides an approach to investment analysis. While not every step will be equally important for every investment opportunity, these 15 steps touch on the most important items in business analysis. Want to gain deeper insights? Subscribe for more premium content and our Quality Growth Framework e-book providing an extensive 100+ page analysis framework.
Note: Qapital does not make investment recommendations to non-professional investors and no communication, through this website or in any other medium should be construed as a recommendation for buying or selling of any security.