The Quick Check: Is This Company Even Worth Your Time?

My 2-Minute Method to Ditch the Duds and Zero In on Quality Stocks

Most companies just aren't worth your time.

I was talking to one of my subscribers last week, and he dropped a bomb: he spends about 10 hours digging into every company that even vaguely piques his interest.

Ten hours! My jaw just about hit the floor. Not because that’s too long for proper research—goodness knows, you need to do your homework—but because he was giving this royal treatment to every single one.

Let’s be real: most companies out there wouldn’t even deserve 10 minutes of a hard look, let alone a 10-hour deep dive.

Warren Buffett, the man himself, says he usually knows if a business is a go or a no-go within minutes of glancing at its financials. His partner, Charlie Munger, put it even more bluntly:

"We have three baskets: in, out, and too tough... We have to have a special insight, or we'll put it in the 'too tough' basket."

So today, I’m letting you in on my own "quick check" system. It’ll help you figure out in just 2-3 minutes if a company is even worth a second glance. This isn’t about being lazy or cutting corners. It’s about being smart, quickly weeding out the definite duds so you can pour your precious time into the ones that actually have a shot.

The Power of Quick Elimination

I've noticed something fascinating after years of studying great investors: they spend more time saying "no" than "yes."

Buffett's famous two-step rule says:

"Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1."

The easiest way to follow this is to quickly eliminate companies that don't meet your minimum criteria.

Think it through. Even if you stumble upon 100 companies that look interesting this year, how many will you actually buy? Maybe one or two, if you're lucky. That means a whopping 98 or 99 of them are destined for the "thanks, but no thanks" pile anyway. Why not get them there quicker?

Let me give you a real example. Microsoft shows a return on invested capital (ROIC) consistently above 20% for the past decade with no downward trend. In two seconds, that tells you this company efficiently generates returns from its capital. Meanwhile, a struggling retailer like JCPenney had negative ROIC for most of the 2010s before its bankruptcy—another quick signal, but in the opposite direction.

If you can eliminate the obvious losers in minutes instead of hours, you'll free up massive amounts of time to focus on the few businesses that could become cornerstones of your portfolio.

The 2-Minute Quick Check Framework

Here's my exact process for quickly determining if a company deserves deeper analysis. I use this as the first filter before any company earns more of my time:

Step 1: ROIC Check (60+ seconds)

I pull up a 10-year chart of Return on Invested Capital (ROIC) first—before anything else. I'm looking for:

• ROIC consistently above 15% (the higher, the better)

• Stable or improving trend over time (not declining)

• How it compares to industry peers

This single metric tells you if a company can generate good returns on the money it invests—the fundamental essence of a great business. I use this as my first filter because it eliminates so many poor companies immediately.

Step 2: Financial Health Check (30 seconds)

Next, I glance at:

• Debt-to-EBITDA ratio (below 3 is ideal for most non-financial companies)

• Free cash flow conversion (FCF should be at least 80% of net income)

• Gross margins (stable or improving)

These tell me if the company has financial strength and quality earnings. If a company is drowning in debt or its cash flow doesn't match reported earnings, that's a huge red flag.

Step 3: Red Flag Scan (30 seconds)

Finally, I look for obvious deal-breakers:

• Significant divergence between earnings and cash flow trends

• Heavy insider selling

• Unusual accounting changes or restatements

• Serial acquisitions with goodwill impairments

I once spotted a company that looked promising until I noticed they had changed their revenue recognition policy three times in four years. That 30-second observation saved me from a potential disaster.

Let's see how this works in practice. When I ran Mastercard through this framework, it passed with flying colors—ROIC consistently above 40% (exceptional), low debt, FCF conversion over 100%, and no red flags. That told me in under 2 minutes that Mastercard deserved deeper research.

Amazon, on the other hand, presents an interesting case. Its ROIC was historically lower but has improved significantly over time, and its operating cash flow has always been strong despite thinner margins. This wouldn't trigger immediate rejection but would flag it for a deeper look at their reinvestment strategy and long-term economics.

ROIC - The Only Number That Really Matters

Why do I obsess over ROIC above all other metrics? Because it's the most reliable indicator of a quality business and future stock performance.

Warren Buffett doesn't explicitly use the term ROIC in his letters, but he constantly refers to its components, writing in 1979: "The primary test of managerial economic performance is the achievement of a high earnings rate on equity capital employed."

ROIC measures how much operating profit a company generates relative to the capital invested in the business. It answers the fundamental question: "How good is this company at taking money and generating returns?"

Research from numerous sources confirms that companies with high and stable ROIC tend to outperform over the long term. One study found that companies in the top quintile of ROIC that maintained this position for five consecutive years outperformed the market by approximately 7% annually.

The minimum threshold varies by industry, but generally:

• Software/Technology: >20% suggests a sustainable moat

• Financial Services: >15% demonstrates operational efficiency

• Consumer Brands: >15% indicates brand strength

• Manufacturing: >12% signals competitive advantage

Mastercard exemplifies ROIC excellence, maintaining rates between 40-60% over the past five years. This extraordinary capital efficiency reflects its powerful network effects and asset-light business model.

You can quickly check ROIC using free tools like TIKR, Barchart's stock screener, or even Yahoo Finance's key statistics page (though you may need to calculate it yourself by dividing operating income by invested capital).

The 4 Essential Red Flags

While ROIC tells you about quality, these red flags warn you about potential disasters:

1. Earnings vs Cash Flow Divergence

When reported earnings consistently exceed operating cash flow, it often signals aggressive accounting. Companies can manipulate earnings, but cash flow is harder to fake.

Buffett notes: "Cash flow matters more than reported earnings. It's very hard to fake cash."

2. Declining ROIC Trend

A multi-year decline in ROIC usually indicates eroding competitive advantages. Even if ROIC is still decent, the downward trend itself is concerning.

I've seen companies with 20% ROIC that decline by 2% annually. Five years later, they're mediocre businesses with 10% ROIC—and their stock price typically follows this decline.

3. High Debt Relative to Earnings

Look at debt-to-EBITDA ratios above 4, especially in cyclical industries. When economic conditions deteriorate, these debt loads can quickly become unsustainable.

4. Management Behavior Warning Signs

Quick checks include:

• Heavy insider selling (beyond normal tax-related sales)

• Frequent CEO/CFO changes

• Overly promotional language in shareholder letters

• Constantly changing how they present their metrics

When Microsoft's CEO Satya Nadella took over in 2014, he clearly articulated his cloud-first, mobile-first strategy and didn't change this messaging every quarter. This consistency is what you want to see.

Remember when I mentioned Amazon earlier? A traditional quick check might have raised concerns about its historically lower ROIC and thin margins. But Amazon represents an important exception: companies deliberately sacrificing near-term profitability for market share and scale. In these cases, you need to look deeper at unit economics and management's capital allocation track record—which is where the 10-hour deep dive becomes worthwhile for select companies.

Free Tools That Make This Easy

You don't need expensive Bloomberg terminals to perform quick checks. Here are the free resources I use:

1. TIKR (tikr.com) - My go-to for quick historical data and trend visualization

2. Barchart's Stock Screener - Great for creating saved screeners with ROIC filters

3. SEC EDGAR - Direct access to company filings (I particularly check the MD&A section)

4. Yahoo Finance Key Statistics - Basic metrics for a quick overview

Pro tip: Create a saved template for your quick check process. I use a simple spreadsheet where I record ROIC, debt ratio, and FCF conversion for any company I'm interested in. This creates a standardized process I can complete in minutes.

For example, when evaluating Microsoft, I can pull up their ROIC trend on TIKR in seconds, then check their debt levels and cash flow from Yahoo Finance. Within 2 minutes, I know if I want to keep researching or move on.

For tracking insider transactions, SEC Form 4 filings are public record and can be viewed for free, showing you exactly what company executives are doing with their own shares.

Building Your Quick Check Habit

The beauty of this system is how it compounds over time. If you save just 5 hours per week by quickly eliminating poor companies, that's 260 hours per year—over six full work weeks!

Here's how to make this a habit:

1. Create a simple checklist with your key metrics and red flags

2. Commit to running every potential investment through this filter first

3. Only proceed to deeper research if a company passes your quick check

4. Keep a log of companies you've rejected and why (this creates accountability)

Most companies just aren't worth your time.

I was talking to one of my subscribers last week, and he dropped a bomb: he spends about 10 hours digging into every company that even vaguely piques his interest. Ten hours! My jaw just about hit the floor. Not because that’s too long for proper research—goodness knows, you need to do your homework—but because he was giving this royal treatment to every single one.

Let’s be real: most companies out there wouldn’t even deserve 10 minutes of a hard look, let alone a 10-hour deep dive.

Warren Buffett, the man himself, says he usually knows if a business is a go or a no-go within minutes of glancing at its financials. His partner, Charlie Munger, put it even more bluntly: "We have three baskets: in, out, and too tough... We have to have a special insight, or we'll put it in the 'too tough' basket."

So today, I’m letting you in on my own "quick check" system. It’ll help you figure out in just 2-3 minutes if a company is even worth a second glance. This isn’t about being lazy or cutting corners. It’s about being smart, quickly weeding out the definite duds so you can pour your precious time into the ones that actually have a shot.

The Glorious Power of Saying "Nope!" Quickly

You know what’s fascinating? After studying the greats for years, I've realized they say "no" way more often than they say "yes."

Buffett's got his famous two-step rule: "Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1." And the simplest way to stick to that? Get good at kicking companies that don't meet your basic standards to the curb, fast.

Think it through. Even if you stumble upon 100 companies that look interesting this year, how many will you actually buy? Maybe one or two, if you're lucky. That means a whopping 98 or 99 of them are destined for the "thanks, but no thanks" pile anyway. Why not get them there quicker?

Here’s a little story. Microsoft? Their return on invested capital (ROIC) has been chilling above 20% consistently for the last decade, no scary downward slides. Two seconds flat, and that tells me they’re pretty darn good at making money from their money. Then you’ve got a struggling retailer like JCPenney. They were swimming in negative ROIC for most of the 2010s before they went belly-up. Another instant signal, just pointing in the completely opposite direction.

If you can boot the obvious losers in minutes instead of dragging it out for hours, you’ll suddenly find yourself with a ton more time. Time you can spend getting cozy with the few businesses that could actually make a difference in your portfolio.

My 2-Minute Drill: The Quick Check Framework

Alright, here’s how I slice and dice ‘em. This is my first line of defense before any company gets more of my attention:

Step 1: The ROIC Once-Over (Give it 60+ seconds)

First thing I do, before anything else, is pull up a 10-year chart of Return on Invested Capital. I’m hunting for:

• ROIC that’s consistently over 15% (the higher, the happier I am).

• A trend that’s stable or, even better, heading upwards (not tanking).

• How it stacks up against others in the same game.

This one number tells you if a company knows how to take a dollar and turn it into more dollars. That’s the heart of a great business, isn’t it? I use this as my first filter because it sends so many weaklings packing right off the bat.

Step 2: Financial Vitals (30 seconds, tops)

Next, a quick peek at:

• Debt-to-EBITDA ratio (for most companies not in finance, under 3 is what I like to see).

• Free cash flow conversion (I want to see free cash flow hitting at least 80% of net income).

• Gross margins (steady or climbing is the name of the game).

These numbers give me a snapshot of the company's financial muscle and whether their earnings are legit. If a company is drowning in debt or their cash flow looks fishy compared to what they’re reporting in earnings, that’s a massive red flag waving right in my face.

Step 3: Red Flag Patrol (Another 30 seconds)

Last up, I scan for the really obvious deal-breakers:

• A big gap between what they say they earned and the actual cash coming in.

• Insiders dumping their stock like it’s on fire.

• Funky accounting changes or having to restate past numbers.

• A habit of buying other companies and then writing off a chunk of what they paid.

I remember this one company that looked pretty good on the surface. Then I saw they’d changed how they counted their revenue three times in four years. Nope! That 30-second find saved me from what could have been a total train wreck.

Let's put this into action. When I ran Mastercard through this little system, it passed with flying colors. ROIC consistently above 40% (that’s rockstar level), hardly any debt, free cash flow conversion over 100%, and zero red flags. Took me less than 2 minutes to know Mastercard was worth a deeper look.

Amazon, now that's a spicy meatball. Their ROIC used to be lower, but it's been on a serious upward trend, and their operating cash flow has always been beefy, even with slimmer margins. This wouldn't make me slam the door, but it would definitely make me want to look closer at how they're reinvesting and what their long-term game plan is.

ROIC: The One Number to Rule Them All (Almost)

Why am I so hung up on ROIC? Because it’s the most solid clue you’ll get about a quality business and how its stock is likely to perform down the road.

Warren Buffett doesn't throw around the term ROIC in his famous letters, but he’s always talking about what makes it up. Back in 1979, he wrote: "The primary test of managerial economic performance is the achievement of a high earnings rate on equity capital employed." Bingo.

ROIC tells you how much operating profit a company squeezes out compared to the capital it has tied up in the business. It answers the big kahuna question: "How good is this company at taking money and making more money?"

Study after study shows that companies with high and steady ROIC tend to beat the market over the long haul. One piece of research found that companies in the top 20% for ROIC that stayed there for five years straight outperformed the market by about 7% a year. Not too shabby.

What's a "good" ROIC? It changes a bit depending on the industry, but here’s a rough guide:

• Software/Tech: Over 20% usually means they've got a strong competitive edge.

• Financial Services: Over 15% shows they're running a tight ship.

• Consumer Brands: Over 15% tells you their brand has some serious pull.

• Manufacturing: Over 12% signals they’re doing something right against the competition.

Mastercard is the poster child for ROIC brilliance, keeping it between 40-60% over the last five years. That kind of crazy capital efficiency comes from their powerful network and the fact they don’t have a ton of heavy assets weighing them down.

You can find ROIC pretty easily with free tools like TIKR, Barchart's stock screener, or even Yahoo Finance's key statistics page (though sometimes you gotta do a quick calculation yourself: operating income divided by invested capital).

The 4 Horsemen of the Financial Apocalypse (Okay, 4 Essential Red Flags)

While ROIC shouts "quality!" these red flags scream "Run away!"

1. When Earnings and Cash Flow Tell Different Stories If reported earnings are consistently way higher than the actual operating cash flow, something fishy might be going on with their accounting. Companies can play games with earnings, but cash? That’s harder to fake. Buffett says it best: "Cash flow matters more than reported earnings. It's very hard to fake cash."

2. The Dreaded Declining ROIC If ROIC has been sliding downwards for several years, it usually means their competitive edge is getting dull. Even if the ROIC is still decent, that downward slope is a worry. I’ve seen companies with a 20% ROIC that then drops by 2% every year. Five years later, they’re just average businesses with a 10% ROIC – and their stock price usually follows that sad trajectory.

3. Drowning in Debt Watch out for debt-to-EBITDA ratios above 4, especially if the company is in an industry that goes up and down with the economy. When things get tough, those big debt piles can become a real anchor.

4. Shady Management Moves Some quick tells here:

• Lots of insiders selling off their stock (more than just for regular tax stuff).

• The CEO or CFO chair seems to be a revolving door.

• Shareholder letters that sound more like a hype-fest than a sober report.

• They keep changing how they report their numbers.

When Satya Nadella took over Microsoft in 2014, he was crystal clear about his "cloud-first, mobile-first" plan, and he didn’t switch it up every quarter. That’s the kind of steady hand you want to see.

Remember Amazon from earlier? A quick glance might have made you nervous about its historically lower ROIC and thin margins. But Amazon is a classic example of a company playing the long game, sacrificing profits now for massive market share and scale later. In cases like that, you absolutely need to dig deeper into their unit economics and see how management is handling the money – and that’s when those 10-hour deep dives actually make sense for a select few.

Freebie Tools to Make This a Breeze

You don’t need a fancy Bloomberg terminal (and the mortgage payment that comes with it) to do these quick checks. Here are the free resources I lean on:

• TIKR (tikr.com): My absolute favorite for grabbing historical data and seeing trends visually.

• Barchart's Stock Screener: Awesome for setting up saved screens with ROIC filters.

• SEC EDGAR: Direct line to company filings. I always check out the "Management's Discussion and Analysis" (MD&A) section.

• Yahoo Finance Key Statistics: Good for a quick hit of basic numbers.

Pro tip: Make yourself a little template for this quick check. I just use a simple spreadsheet where I jot down ROIC, debt ratio, and FCF conversion for any company that catches my eye. It keeps things consistent and I can whip through it in minutes. For instance, when I'm looking at Microsoft, I can pull up their ROIC trend on TIKR in a flash, then hop over to Yahoo Finance for their debt and cash flow numbers. Two minutes, and I know if I’m digging deeper or moving on. Oh, and for tracking who's buying or selling company stock? SEC Form 4 filings are public and free. You can see exactly what the execs are doing with their own shares.

Making the Quick Check Your New Best Habit

The best part about this system? The time it saves you really adds up. If you claw back just 5 hours a week by quickly ditching the duds, that's 260 hours a year. That’s more than six full work weeks! Imagine what you could do with that.

Here’s how to get this habit locked in:

• Make a dead-simple checklist with your go-to metrics and red flags.

• Promise yourself you’ll run every potential investment through this filter first. No exceptions.

• Only if it passes the quick check do you even think about more research.

• Keep a little log of the companies you said "no" to and why. It helps keep you honest.

Remember, investing isn’t about who can analyze the most companies. It’s about finding those few truly special ones you want to own for the long haul. Like Buffett says, "Time is the friend of the wonderful business, the enemy of the mediocre."

When I look back at the companies that have really made a difference for me – Microsoft, Mastercard, and a few others – they all aced this quick check. More importantly, tons of flashy-looking companies that turned out to be junk never even made it past this first hurdle, saving me who-knows-how-many hours and, more importantly, my capital.

So, the next time you hear about some "can't-miss" investment, just pause. Take 2-3 minutes for a quick check. Your future self, the one with more time and better results, will thank you.

What company are you going to quick-check first?