Servant Financial will identify businesses with sustainable business
models. These businesses typically share the following
- Consistently high and stable profit margins
- Above-average returns on equity (>12%).
- Strong balance sheets with prudent use of leverage.
to generate free cash flow (operating cash flow less dividends and
capital expenditures). We seek to invest in a business whose future
earnings and cash flows are predictable to a high degree of
certainty. Companies with predictable earnings have good business
economics and produce cash that can be reinvested or paid out to
- Defendable and superior market positions. We
seek businesses whose product or service will be in constant and
growing demand and avoid commodity-based firms, selling products
where price is the single most important factor determining
purchase. Superior businesses sell products and services where
there is limited effective competition, either due to a patent or
brand name or similar intangible that makes the product or service
- Above-average growth prospects.
- Superior capital
allocation. We seek businesses whose managements have proven they
are able to employ retained earnings in new moneymaking ventures or
for stock buybacks when they offer a greater return.
and consistent corporate strategy. We avoid business that have
questionable social and environmental aspects or that frequently
change corporate strategies.
- Character, integrity and overall
capability of management. We avoid businesses with managements with
questionable reputations and/or ability.