Exclusive Guide to Due Diligence
 

With thousands of small cap companies competing for investment dollars, it is critically important that retail and institutional investors fully understand the strengths & weaknesses of a public company.

In a Perfect World, these are the questions you want to ask the senior executives of a public company before you invest any money. Unfortunately though, this is extremely difficult unless you're an institutional fund manager. Therefore, use this as a Guideline for all your small and microcap investments.

These questions were formulated after extensive interviews with brokers, equity analysts and institutional fund managers over a period of years (they are intended to assist in your overall due diligence). When combined with a company's news releases and financial reports, we believe this provides an excellent methodology for researching a company. We have separate protocol for junior mining and exploration companies, but these questions serve as a good benchmark for any company.

 


Microcap.com 47 Point Interview

Comprehensive Due Diligence

 

GROWTH POTENTIAL:

1) Do you view yourself as an industry leader or innovator:

2) What competitive advantages does your company have within it's industry

3) Who are your main competitors within this industry.

4) In what areas have you demonstrated market leadership

5) Where do you believe your strongest growth prospects lie and what does the growth of your industry look like over the next few years

6) Do you outsource any of your Networking / Information Services

7) Do you have an estimate as to the size ($) of your industry's market (national and international)

8) With respect to the previous question, do you have an idea what percentage of this market you hold and what would be your objective after 3 years

9) Is your industry very fragmented – if so, any plans to consolidate it (pending available capital)

10) Is the ability to attract skilled labor an issue for you – if so, how do you resolve this

11) Is your business more labour intensive or capital intensive

12) Are you currently contemplating any mergers or acquisitions

13) Does your company posses any significant Barriers to Entry for competitors (patents, etc.) 

FINANCIAL POSITION & CORPORATE STRUCTURE

14) Share Structure: Percentage held by management/insiders, institutions, estimated public float

15) List Current options or warrants outstanding – exercise price and expiration dates

16) What price have financings (if any) been done in the past 12mths and when is that stock free trading ? Are there warrants attached and if so, what is the exercise price and expiry date. Was this stock placed with institutions, insiders or retail investors through a brokerage firm?

17) Is your website kept current and can investors find your most current financials there

18) How long has the company a) been in business b) publicly traded

19) What is the company's current working capital position and are there financings proposed for the coming year

20) What is the company's current debt situation and are there any outstanding convertible debentures. If so, what is the conversion price/terms and due date.

21) What is your forecasted revenue for the current year and estimated EPS for this year and the next? If you do not anticipate a positive EPS, what is a reasonable expectation

22) Are margins within your industry improving or on the decline through competition

23) Percentage growth in sales (estimated) over the next 2 years

24) What is your company's current Net Asset Value (NAV)

25) Will your currently monthly burn rate force a financing within the next 6mths (debt or equity)

26) Can you fund growth through cash flow or is a large equity financing required

27) Have you used the same auditors for the past 2 years (if not, explain why)

28) Are there any pending lawsuits against the company

MANAGEMENT

29) What are the notable strengths and experience of your senior management team

30) Have any members of your senior management group filed for bankruptcy

31) Have any seniors managers or directors ever been charged by a Securities Regulator

32) What do you believe are the strengths of your Board of Directors

33) Does your board have an Internal Audit Committee

34) Has your company ever been the target of a trading suspension (or any of your directors)

35) On average, have your senior executives been Buyers or Sellers of your stock over the past 90 days ? If neglible amounts of stock have been traded, please indicate N/A (not applicable)

CORPORATE COMMUNICATIONS

36) What efforts are being made (or proposed) to increase of your company to the investment community – including retail investors, brokers, and institutions.

37) Do you have an in-house I/R person

38) If you do not have someone in-house who handles investor relations, have you hired an outside firm to handle this? If so, what is the term of the contract and compensation being paid (including monthly fees and stock options issued)

39) Do you have any analyst coverage – if so, who and can they be contacted for a report copy

40) Does anyone within your organization monitor public bulletin boards for investor feedback

41) What is your average daily trading volume over the past 90 days

42) Do you currently have any share buyback programs in place or pending

43) What does your company do in an effort to "get the word out" on your stock (i.e.: presentations to funds and institutional investors, brokerages, etc.)

44) Who is the best contact person if investors would like to speak with someone concerning an investment in your corporation (email and phone number)
THINK BIG, MOVE FAST

45) Does your company fit this statement (why or why not)

46) Investors are looking for companies than can grow quickly to meet the demands of large markets, and your ability to ramp up business quickly is critical. Could your company meet this demand?

CONCLUSIONS:

47) Can you summarize why your company makes a good investment?