What Makes A Good Company?

Frank Robinson was a bookkeeper who worked for Dr John Pemberton. Robinson gave the mixture of caramel-coloured syrup and carbonated water the name, Coca-Cola. He wrote out the name in his distinctive cursive writing. Today, 125 years later, the name is written in exactly the same manner as Robinson first wrote it. Now that is sustainability.

1. Sustainability
Is the business sustainable? Is the business one that is likely to be around in years to come?

2. Innovation
What is the company's philosophy towards innovation? Innovation ensures that a company and by extension, its investors, will not stand still.

Two ways to determine the importance a company attaches to innovation:
- to examine the company's history of rolling out new products,
- to check the annual report for the amount of annual spend on research and development.

3. Corporate Governance
How serious is the company about corporate governance? Does management walk the talk? How strong is the board and what skills do the independent directors bring to the company? Are they discharging the duties they were elected to discharge by the shareholders?

4. Cash Flow
How strong is the company's balance sheet. How much debt does the company carry and is the level of debt reasonable relative to current and future earnings?

5. Cash Conversion Ratio
What is the company's cash conversion ratio (that is how much of its annual earnings is typically converted into cash)? Companies with a cash conversion ratio in excess of 90% are more likely to be in a portfolio of a pension fund or high net worth individual than one which has a low cash conversion ratio.

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