We continually visit hundreds of companies' managements and integrate their input with our knowledge base. Our goal is to understand management's motivations and expectations. Given our approach, we want to know who our partners are and if they are working to enhance shareholder value. This process, coupled with our financial analysis, helps us select the most attractive investment candidates for our portfolios. The first step is to analyze the income statement and cash flow.
Cash flow is viewed as a barometer of financial health, and often foreshadows earnings trends.
We attempt to forecast the direction and growth rates of the earnings and cash flow streams. The second step is to examine the balance sheet. To these two analytical processes, dynamic forecasting and static asset and liability valuation, we add our assessment of the private market value of the business. Catalyst Identification of a mispriced situation, however, does not necessarily guarantee a rewarding investment. The next step is to determine events that will narrow the spread between a stock's public market price and our determination of its intrinsic value.