Investing Basics: Marks of Great Companies ,
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                   I N V E S T I N G  B A S I C S
                     Wednesday, December 13, 2000

benjamin.rogers@enron.com
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ASK THE FOOL

This weekly e-mail offers answers to questions that perplex most
beginning and intermediate investors and throws in an
investing-related lesson, as well. Enjoy!

-- Q. Tell me about this firm I've heard of, Kleiner Perkins
Caufield & Byers. Does it underwrite initial public offerings
(IPOs)?

-- A. It's one of the top venture capital firms, based in
Silicon Valley. Its partners pool their money and invest in
fledgling companies, specializing in computer-related technology
and life sciences firms.

Venture capitalists typically enter the scene well before a
company gets to the IPO stage. They pony up a lot of money to
help the firm grow, usually in exchange for a large percentage
of the company. They offer guidance, as well. The expectation is
that once the company grows to a certain point, it will go
public and the venture capitalists can cash out, making a very
tidy profit.

Kleiner Perkins has funded many companies, such as Amazon.com
and Netscape, in their infancy.

-- Q. What's a company's "payout ratio"?

-- A. It's the percentage of net income the firm pays out to
shareholders as a dividend. If Buzzy's Broccoli Beer (ticker:
BROCB) pays $1.00 per year in dividends and earns $4.00 per
share, its payout ratio is 25 percent.

This shows what the company is doing with its money. If much of
its earnings are being returned to shareholders, then little is
being reinvested in operations. That can be OK, as sometimes
reinvested earnings would return less than shareholders could
get investing the payout on their own.

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INVESTING BASICS - MARKS OF GREAT COMPANIES

In this space, we've discussed many aspects of evaluating
companies, honing in on measures such as earnings yield, return
on assets and so on. It's vital, though, to also evaluate the
big picture, to make sure that the company you're looking at is
a first-class operation and one you'd be proud to own in your
portfolio. Here are some marks of great companies.

*Powerful brands.* Think of names well known in the United
States, or better yet, around the world. Brands like McDonald's,
Gucci, Campbell Soup, and IBM fit the bill. If most people don't
yet know a company's name, then it still has a lot of work to
do.

*Significant products or services.* Look for a company that's
selling its customers something they really need or really want.
Pharmaceutical companies, for example manufacture products that
people will buy whether they're flush with funds or strapped.
Firms like Ben & Jerry's and Starbucks offer consumers things
they love. We often look for products that people buy over and
over, like cheeseburgers and shampoo, instead of items bought
only sporadically, like cars.

*Consistent, reliable earnings and sales growth -- and robust
margins.* Track how sales and earnings have increased over past
years. An upward-sloping line suggests that management is
planning and executing well, encountering few surprises. Stack
your company's gross, operating and net profit margins up
against its competitors to see which one is wringing the most
value out of each dollar of sales.

*Lots of potential.* See what the company's growth prospects
are. Is it expanding abroad? Is it coming out with exciting new
products or services? Are its offerings taking the country by
storm? Is it trouncing its competition?

A final consideration when qualifying companies for further
research is how well you know the company and industry, and how
much you'd enjoy keeping up with its developments. A company
might have enormous potential, but if reading about it puts you
to sleep, it might not be the best addition to your portfolio.
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A NOTE FROM THE AUTHOR=01(

I hope you're finding this product useful. The content
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