Question

Do you agree with the statement that: “Other things being equal, the higher the quality of a business the more it should be worth”? Describe the quantitative and qualitative factors you consider important in determining the quality of a business.  

Answer 1

Yes, I do agree that when the quality of the business is higher, it will mean that the worth of the business will also be higher because there will be larger number of investors who will be wanting to buy the shares of the company and they will be wanting to be the part of investment into the company as this company who have a higher quality of business are likely to succeed in the long period of time and they are also likely to sustain and create value for the investors so investment in the business will mean not only incremental benefit on the front of profitability but it will also always try to improve upon all the aspect and it will always try to maximize its rate of return for the shareholders and protect their interest so the business which is having a higher quality will always be having a higher worth.

2. Quantitative factor I will be considering in determination of the quality of the business will be ratio which are related to the solvency along with the profitability and Asset Management ratios,so that I will be able to derive the overall functioning of the business and I will be likely to compare the business with the other businesses of the same industry in order to determine the the performance of the company on the quantitative front.

when I would be looking at determination of the qualitative factors, then I would be looking at factors like quality of the corporate governance and quality of the management and no history of fraud and manipulation of books of accounts and the company has always tried to protect the interest of the stakeholders and I will also determine the competitive and then I will be trying to invest into the company.