Am a billionaire

I use this system after researching any company that looks of interest. I pretend that I am a multi-billionaire investor and could buy any company or as many companies as I want to. But of course I want to buy them on the cheap. I want to buy companies that are making profits, but if I pay cash for the companies I know these profits would probably grow. Over a few years I'd get back what I paid for the company and start to make a lot of money on top.

The idea behind my system is: if I decide it's worth splashing out a small part of my billions to buy the company, then I've decided the company is cheap. And if that's the case, I should buy the shares because, if I'm right, sooner or later someone will buy the company or the share price will go up anyway.

So, how can I work out whether to splash out a small part of my billions on snapping up a company?

The first thing to look at is the profit the company makes; and the second is the market capitalisation. In my billionaire role, my rule of thumb for how much the company might cost me to buy is the market capitalisation. So if a company's market cap is £50 million, that's how much the market currently thinks the company is worth.

ADVFN provides the market cap and the profit on its 'Quote' page on the same line, so they are easy to find.

Screenshot from ADVFN Quotes page

iFenner(FENR)

Click for Financially

Name Symbol

Market

Type

1S IN

Description

Fenner LSE:FENR

London Stock Exchange

Equity

GB0003345054

ORD 25P

Sector

Turnover (m) Profit (m|

EPS - Basic

I PE ratio 1 H

iktc^Mn NMS 1

INDUSTRIAL MACHINERY

373 0 29.3 y

13.□

17.827 V—

As a billionaire, I don't really care about complicated financial ratios and all that twaddle. What I want to know is: how much do you want for your company and what are the profits?

Putting it simply: if a company is making profits of £10 million and its market cap is £100 million, that would interest me.

But if a company makes a £10 million profit and is capitalised at £200 million, then I'm not so interested - even if it has some kind of stupendous product that is about to dramatically raise profits. I don't want to spend £200 million to get profits of £10 million whatever the prospects.

So my rule of thumb is a max of around 15 times market cap to profits.

OK, you're scratching your head now -what's he on about?

Let's go back to the company making £10 million. The most I want to see the market cap at is around £150 million. That's 15 times. Any more than that and it starts to look expensive - so why would I buy the shares?

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