Deconstructing Quality, Part II

Part I of the series looked at how Burgundy assesses the quality of a business via three elements – business characteristics, financial attributes and management – and examined the specific business characteristics that help to define a quality business. Now, let’s turn our attention to the second element of quality.

Bernstein Likes The Value Factor Free Cash Flow... A Lot

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Financial Attributes

There are three financial attributes that make for attractive investments:

1. Strong balance sheets
2. Low capital requirements
3. Growth in free cash flow

When selecting companies for inclusion in our clients’ portfolios, we focus on companies that have strong balance sheets....