How I evaluate a business before buying - my simple checklist
u/MarketObserver_IN ·
Reddit — r/ValueInvesting
· March 23, 2026 at 11:04
· ⬆ 15 pts
· 💬 10 comments
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Summary
The post outlines a personal 6-point checklist used by the author to evaluate potential value investments.
Key criteria include business understandability, consistent earnings/FCF compounding, defensible moats, historical capital allocation (ROIC), downside protection, and reasonable valuation.
Quality assessment: Educational methodology and general investing framework; contains no specific due diligence, speculation, or actionable noise regarding individual assets.
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Been refining this over the years. Not perfect but helps me avoid obvious mistakes.
1. Do I understand what the business actually does? If I can't explain it simply, I skip.
2. Has it compounded earnings or free cash flow consistently for 5+ years? One good year means nothing.
3. Is the moat real or imagined? Brand, switching costs, network effects, cost advantage - pick one that's actually defensible.
4. Is management allocated capital well historically? Check ROIC over 10 years, not just last year.
5. What's the downside if I'm wrong? Can the business survive a bad few years without going under?
6. Am I paying a reasonable price? I don't need the cheapest price, just not obviously expensive.
I've found that if a company fails even 2 of these, it's rarely worth digging further. What does your checklist look like?