Series 80 – Parameters of our Framework-in Choosing Great Businesses

Last week, we elaborated on our research process and the crucial role data science plays in making unbiased, data-driven decisions. Our edge in consistently outperforming across cycles lies in our framework, which helps us filter great businesses from good ones. While we’ve discussed our scalable framework extensively, we want to highlight the two key parameters that help us identify great businesses during favorable cycles.

Our partners have asked how we choose one business over another within the same sector. We believe it is our responsibility to address these questions. These are the parameters guide us in making our selections and ensure we consistently choose businesses with the best potential.

1. Quantitative Parameters: The ITUS portfolio focuses on businesses with strong quantitative metrics. These companies ensure shareholder returns with RoIC consistently exceeding the cost of capital across cycles. They fund fixed asset expansion through internal accruals, minimizing debt reliance. We scrutinize ownership structures for downside risks, share pledges, and related party transactions. Additionally, we remain vigilant against accounting gimmicks, such as excessive CA fees and financial restatements, to ensure transparency and accurate economic cash flow calculations.
2. Qualitative Parameters: The ITUS portfolio also emphasizes qualitative metrics. We look for businesses with strong brand presence, efficient distribution networks, and robust supply chains. We evaluate management’s past and present performance to understand the culture they’ve built. We ensure alignment with partners through on-the-ground channel checks and surveys. Furthermore, the ability to transfer price increases within the supply chain is a key indicator of pricing power and resilience.

These factors collectively guide our decision-making process, ensuring we select the business with the best potential for consistent performance across cycles.

And Again, We keep writing to you about our SIP program that presents investors with a convenient avenue to regularly infuse capital into the client’s portfolios. Feel free to check out the benefits for your clients. If you need more info, reach out to your dedicated relationship manager at [email protected].

These weekly episodes are now available in our website for your quick read and you may access the same in the below link.

Weekly Enlightenment Archives – ITUS Capital