TFI008: How to Evaluate Company Managements

The Free InvestorsWhat are the factors we should consider when evaluating a management team? How to figure out whether the management team is shareholder friendly?

These are the questions I addressed in this episode.

  1. High insider ownership
    • Owner operated?
  2. Shareholder friendly?
    • How do they make use of the company money? (allocate capital well?)
      • Dividend (Return to shareholders)
      • Stock buyback (Return to shareholders)
      • Pay down debt (De-risk)
      • Capex (Invest in business – internal)
      • Acquire companies (Invest in business – external)
    • How do they communicate with the shareholders?
      • Annual letters
      • Press releases
      • Conference calls
  3. Experience and execution track record
    • Career path
  4. How they are compensated
    • Look in SEC filings and annual reports
    • Based on sales growth? net profit? operating profit? ROI?
    • Excessive compared to industry peers?
  5. Assess how important is the management to the business?
  6. Type of management
    • Visionary – Works well in early stage companies
    • Efficient operator – Works well in established companies with a strong moat around the business.. relatively secure against competition
    • Efficient Capital allocator – Works well in fragmented industries on the verge of consolidation
    • Mediocre management in a great business?
  7. Any red flags from past experience of the management?

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