If you have followed the GWII Investment Framework: BMPB blog series, thank you, now it’s time to assemble the components:
- analyze the Business,
- evaluate the Management,
- estimate the Price vs. the Valuation, and
- research the Balance Sheet.
Score each BMPB framework component from 1 – 10. To calibrate the scores, a 10 is the best in the category. For example in the business component a score of 10 is the best business you can find, high profit margins, great brand, and has many opportunities to reinvest capital at high rates of return. A score of 5 is an average business, and a 1 is a terrible business. This score is what you the analyst will assign in the open box in the below table. Weight each component of the framework 25% and derive a composite score for the company, i.e., a weighted average. Refine your score as many times as you think necessary (hint more than once). Being consistent with the system is important. After you have scored more than one company you may compare these scores, to be clear a higher score implies a higher degree of confidence.
GWII Investment Framework: BMPB
| Component | Score (1-10) | Weight | Brief Description |
| Business | 25% | Analyze: What’s the company’s business model? How do they make money? What products and/or services do they offer? In what geographic regions do they operate? What’s their Return on Equity (ROE), using the Dupont Formula ROE = Profit Margin x Asset Turnover x Equity Multiplier. What’s their revenue growth rate? What’s the change in their profit margin over time? (see GWII Investment Framework, BMPB – Business blog post) | |
| Management | 25% | Evaluate: To evaluate management use the acronym CAPITAL – Capital Allocation; Preparedness; Incentives; Track record; Alignment; Long term.(see focus on management blog post) | |
| Price vs. Valuation | 25% | Estimate:Estimate the company’s intrinsic value and compare that to its current market price. (see Is the process for valuing a company an art, a science, or some combination? blog post) | |
| Balance Sheet | 25% | Research: Work to understand the company’s credit rating and balance sheet structure. What’s the risk level of the company’s capital structure? (see How do you get confidence in a balance sheet? blog post) | |
| Composite Score (weighted average) | 100% | Note: Your composite score should reflect all the work you have put into your overall analysis. |
This elemental structure, BMPB, provides you with a basic tool to evaluate many different investment opportunities. The BMPB investment framework has served us well since 2005 and continues to do so. We work to consistently refine and improve our process and analysis. Continuous improvement is a core feature of what we do. Thank you for taking the time to read about the GW Investment Institute’s Investment Framework.
Rodney E. Lake
April 16, 2021