Online Journal for the Moose Pond Investors Club

Evaluating Management

As Graham and Dodd note in their book, Security Analysis:

Objective tests of managerial ability are few and rather unscientific…. The most convincing proof of capable management lies in a superior comparative record over a period of time….

Sections I and II of the stock selection guide provide tools for evaluating the performance of company management over a ten year period. Section I provides a visual representation of revenues, earnings and pretax profit that shows growth and consistency. Section II shows pretax profit margins and return on equity for the same period. Together, these metrics provide a good indicator of the long term results achieved by management.

Here is a presentation from the DC Chapter of NAIC on Evaluating Company Management. The presentation also discusses calculation of the “Robertson Quality Rating.”

[PowerPoint version of the NAIC DC Chapter presentation on May 7, 2005.]

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