The Motley Fool's Rule Maker Ranker

Version 3 -- Updated June 2000

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Financial Analysis

(Please read all three of these competitor comments.)

Competitor #1
Competitor #2
Competitor #3

Company Being Evaluated

<Fill in Company Name>

Current Period
<Date>

Year-ago Period
<Date>

<Fill in Name>
Year-over-Year
Growth

<Fill in Name> <Fill in Name>

Current Period
<Date>

Current Period
<Date>

Current Period
<Date>

Income Statement
Sales
Cost of Goods Sold
Net Income
Shares Outstanding
Balance Sheet
Cash & Equivalents
Current Assets
Short-term Debt
Current Liabilities
Long-term Debt
Cash Flow Statement
Operating Cash Flow
Capital Expenditures
0

Margins & Ratios . . .

Gross Margins
Net Margins
Cash-to-Debt
Net Cash
Fool Flow Ratio
Cash King Margin

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Ranking Rule Makers
1) Brand
Familiarity
Openness
Optimism
Legitimacy
Inevitability
Solitariness
Humor
Subtotal

Points (0-1)

2) Financial Location
Mass Market Habit
Gross Margins
Net Margins
Cash-to-Debt
Fool Flow Ratio
Your Interest
Subtotal

Points (0-2)

3) Financial Direction
Sales Growth
Gross Margins
Net Margins
Shares Outstanding
Cash-to-Debt
Fool Flow Ratio
Expansion Potential
Subtotal

Points (0-3)

4) Monopoly Status
Gross Margins
Net Margins
Net Cash
Fool Flow Ratio
Convenience
Subtotal

Points (0-4)

0
5) Your Enjoyment

Total Score

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Competitors'
Average

Ranking Rule Makers -- Scoring Criteria

1) Brand
Familiarity
Is it everywhere?
1 point: passable to excellent
0 points: failure
Openness
Does it welcome everyone?
1 point: passable to excellent
0 points: failure
Optimism
Can it promise a slightly better world?
1 point: passable to excellent
0 points: failure
Legitimacy
Is it accepted by the people?
1 point: passable to excellent
0 points: failure
Inevitability
Is it becoming a necessary purchase?
1 point: passable to excellent
0 points: failure
Solitariness
Is it the standout category king?
1 point: passable to excellent
0 points: failure
Humor
Has it surprised you in the last 5 years?
1 point: passable to excellent
0 points: failure

2) Financial Location
Mass Market Habit
How often do consumers return for purchase?
2 points: purchased more than once a month
1 point: purchased from once a month to once a year
0 points: purchased less than once a year
Gross Margins

(Total Sales - Cost of Goods Sold)

Total Sales
2 points: above 60%
1 point: 40-60%
0 points: below 40%
Net Margins
Net Income
Total Sales
2 points: above 10%
1 point: 7-10%
0 points: below 7%
Cash-to-Debt Ratio
Ratio of Cash & Equivalents to Long-term debt
2 points: 1.5 times more cash than long-term debt OR no debt
1 point: from 1 to 1.5 times more cash than debt
0 points: less cash than long-term debt
Foolish Flow Ratio
(Current Assets - Cash & Equivalents)
(Current Liabilities - ST Debt)
2 points: below 1.00
1 point: from 1.00 to 1.25
0 points: above 1.25
Your Interest
Your Familiarity and Interest
2 points: user of the products and interested
1 point: familiar with the products and curious
0 points: unfamiliar with the products and uninterested

3) Financial Direction
Sales Growth
Year-over-year % increase in sales
3 points: above 15%
2 points: from 10-15%
1 point: from 5-10%
0 points: below 5%
Gross Margins
Year-over-year, Gross Margins have:
3 points: risen
2 points: fallen less than 1 percentage point
1 point: fallen 1 to 3 percentage points
0 points: fallen more than 3 percentage points

Net Margins
Year-over-year, Net Margins have:
3 points: risen
2 points: fallen less than 1 percentage point
1 point: fallen 1 to 3 percentage points
0 points: fallen more than 3 percentage points
Shares Outstanding
Year-over-year, fully diluted shares have:
3 points: fallen
2 points: risen 0 to 4%
1 point: risen 4 to 6%
0 points: risen more than 6%
Cash-to-Debt Ratio
Year-over-year, Cash-to-Debt ratio has:
3 points: No Debt
2 points: risen OR initiated debt but ratio is at least 1.5
1 point: fallen less than 10% OR initiated debt but ratio is < 1.5
0 points: fallen 10% or more
Foolish Flow Ratio
Year-over-year, Flow Ratio has:
3 points: fallen more than 10%
2 points: fallen from 5 to 10%
1 point: fallen 0 to 5%
0 points: risen
Expansion Potential
3 Questions:
1) Do my friends know about and use the company's products?
2) Is worldwide expansion believable for their stuff?
3) Is the company accurately reflecting its performance through conservative accounting?
3 points: you can clearly answer "yes" to all 3
2 points: you pretty much agree
1 point: you're scratching your head in confusion
0 points: plainly "no"

4) Monopoly Status
Gross Margins
Compared to the competition, Gross Margins are:
4 points: 5 percentage points ahead
2 points: ahead by less than 5 percentage points
0 points: competition has higher Gross Margins
Net Margins
Compared to the competition, Net Margins are:

4 points: 5 percentage points ahead

2 points: ahead by less than 5 percentage points
0 points: competition has higher Net Margins
Net Cash
Compared to the competition, Net Cash (measured as Cash minus Debt) is:
4 points: 5x more cash than competition
2 points: 2x more cash than competition
0 points: less than 2x more cash than competition
If any of the companies have negative Net Cash, but none have no debt, then:
4 points: Cash-to-Debt is 25% higher than competition
2 points: Cash-to-Debt is higher but not by 25%
0 points: Cash-to-Debt is lower than competition
Finally, the last possibilities are:
4 points: Company has no debt, while competition has negative net cash
0 points: Company has negative net cash, while competition has no debt
*Note: This is a change from the criteria set forth in
Rule Breakers, Rule Makers. We made the change because of
the awkwardness of comparing companies, many of which have
no debt whatsoever. We substituted Net Cash because
this figure gives us a measure of a company's "war chest."
Do you agree? Disagree? Bring your ideas to the boards.
Foolish Flow Ratio
Compared to its foremost competitor, the Foolish Flow Ratio is:
4 points: 25% lower
2 points: lower, but by less than 25%
0 points: higher than lead competitor
Convenience
Within its industry, product/service accessibility and convenience are:
4 points: the best
2 points: no advantage nor disadvantage versus the competition
0 points: less than the best

5) Your Enjoyment
Do you believe you'll enjoy following this business over the years?
1 point: yes
0 points: no

Total Score
A business can earn seven total points on its branding, twelve on its financial location, twenty-one on its financial direction,
twenty on its monopoly status, and one for your enjoyment. All together, that equals a potential 61 points per company.
Note: This system of ranking is meant primarily for companies with at least $1 billion in annual sales.

Tier Rankings
The following tier categories are not buy/sell recommendations in any way, but merely a framework for ranking companies
aspiring for the Rule Maker throne.
A top tier (50 - 61 points) company represents the best of the best in the business world -- a true Rule Maker.
This is the type of business to own for a decade or longer.
A second tier (40 - 49 points) company is typically a good investment. One must try to determine whether this company
is moving up toward the top tier or falling down to tier three.
A third tier (30 - 39 points) business is suffering from a slow-down in operational momentum. This company typically
does not have a Rule Maker business model and/or may face fierce competition within its industry.
A fourth tier (below 30 points) company may not be an altogether bad business, but it is not a Rule Maker.

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The Motley Fool's Rule Maker Portfolio is a real-money portfolio whose aim is to buy and hold Rule-Making companies
without selling for at least 10 years. This approach has the benefits of low and infrequent trading commissions, low and
infrequent taxes, and superior investment performance. Since its inception in January 1998, the Rule Maker Portfolio is
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