1. How does the company make money? Always examine the revenues of each segment of the business to see how much it contributes to the overall earnings. For example, if a company is in the computer business, it’s important to know how much of its sales are from personal computers versus software support.
2. Where is the company’s growth coming from? If a company derives 50% of its revenue from semiconductors and industry growth has fallen 10% from a year ago, you need to take a closer look.
I always want to know where the company’s next three years’ worth of growth will come from. The answer will lead you to discover new products in the pipeline, new production synergies, etc.—key factors for putting the company’s growth in context.
3. Who are the customers? Once you know who the customers are, you can see who the company is counting on to continue its growth. How many customers does the company have? Does it have a wide geographical reach? If it relies on one large customer, then it is vulnerable if that customer cuts orders. When the customers are individual consumers, you should always gauge customer satisfaction and demand.