If a company has excellent economics it is characterized by little or no debt, high profitability, growing earnings, a good brand name, products or services that people need, predictable earnings growth, expanding value, and a high rate of return on shareholder equity.

Companies that have little or no debt are usually companies that have consumer monopolies like Phillip Morris, GE, McDonalds, Coca-Cola, and Wrigley. These companies all have products that have a high level of consumer loyalty. Because of their large cash flows, they are literally debt free.

If a company has little debt, it gives them more freedom to increase their profitability, for example buying back shares of their stock, pursuing other profitable ventures, or investments made in different companies. Companies that have little debt do not have to constantly update their products or build new plants.

Companies that have high profitability usually have strong earnings, are well managed, have a proven business model, and have a great product or service. One way to determine if companies expect to have high profitability is by looking at whether or not they're buying back their own shares. When a company does this, they send out the message that says "We believe that investing in our company is the best thing we can do with our extra cash".

Retained, growing earnings means that the company’s earning are increasing every year. Retained earnings means that the company doesn’t pay out a dividend to its shareholders. Instead it keeps the earnings and uses them to help build their company. This goes hand in hand with expanding value.

If they employ the retained earnings into successful business enterprises then the company will probably become more profitable and efficient in their operations. If a company has a high earning growth rate, chances the value of it's stock will increase as well. However if the earnings are unpredictable and vary from quarter to quarter, chances are the stock will be very volatile.

If one were investing from a business perspective, it would make business sense to invest in a company that has a product or service that people depend on, and is known throughout the world. Companies like McDonald’s and Coke are great examples of this.

If a company has a high return on equity then it has the ability to produce a great deal of wealth for its shareholders. Shareholders’ equity is defined as a company’s total assets minus its total liabilities. The amount of money that the company earns on this money is the return on equity.

For example if a company had $20 million in assets and $8 million in liabilities, the business would have a shareholder’s equity of $12 million. If the company earned $4 million after taxes the business’s return of shareholder equity would be 33%(4,000,000/12,000,000=33%) The average return on shareholder equity for an American business for the last forty years is 12%.

Warren Buffett believes that a consistently high return on equity is a good indication that the company’s management not only can make money from the existing business but also can profitably employ retained earnings to make more money for its shareholders.

These are the different factors to examine when investing from a business perspective. To sum it up, when you invest in a company using this method, you should ask yourself, "Would I buy 100% of this company if I had the money". If the answer is no, then you shouldn't invest in it.
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