How to Spot a Great Business in 10 Minutes: A Five Criteria Screen

You can screen a stock in about ten minutes by running one quick check for each of the Five Criteria, in order: returns on capital, margin stability as a moat signal, share count, net debt to EBITDA, and free cash flow yield. Fail any of the first four and you move on. Pass them and the business has earned a full research session.

There are thousands of listed companies in North America alone. Nobody can research them all properly. The investors who do well are not the ones who find more ideas. They are the ones who reject bad ideas fastest.

Where this fits: this is the screening step at the front of the Five Criteria. It decides which companies deserve the full step-by-step research process. The framework itself is in A Proven Investment Strategy Built on Five Key Criteria.

Why Most Investors Screen Stocks the Wrong Way

Most people research reactively. A company appears in a headline, a friend mentions it, or they like the product. They start reading, build enthusiasm, and because they have already spent time on it, they keep justifying it.

The better approach is to make a business earn your attention before you give it any. Joel Greenblatt built his “magic formula” in The Little Book That Beats the Market on two questions: does the business earn a high return on capital, and is it cheap? The ten-minute screen uses the same logic but adds a quick look at the moat, management and debt.

Charlie Munger liked to joke that all he wanted to know was where he was going to die, so he would never go there. In stock screening, that means knowing what a bad business looks like and eliminating it at once.

The 10-Minute Stock Screen at a Glance

Minute	Criterion	Quick check	Pass if
0 to 2	1. Great business	ROIC over five years	15% or more in most years
2 to 4	2. Durable moat	Gross margin trend, plus “why can’t a rival copy this?”	Margin stable or rising, and an obvious answer
4 to 6	3. Aligned management	Share count over five years	Flat or falling
6 to 8	4. Sound balance sheet	Net debt / EBITDA	2.0x or less
8 to 10	5. Reasonable price	Free cash flow yield	5% or more (otherwise watchlist)

All of these numbers are on free sites. How to Use Yahoo Finance for Stock Research and How to Use Morningstar for Investment Research show where to find them. Macrotrends and Stock Analysis are useful for long-run charts.

Minutes 0 to 2: Does It Earn High Returns on Capital?

This is the single most useful number in business analysis, and most beginners never check it. Return on invested capital (ROIC) measures how much profit a company earns on every dollar of debt and equity tied up in it.

A company with 25% ROIC earns 25 cents a year on each dollar it uses. A company with 7% ROIC barely covers its cost of capital. Growth at 7% ROIC creates very little value for shareholders.

How to check: look up ROIC for the last five years. Some sites only show return on equity (ROE). ROE is an acceptable stand-in for a first glance, but debt can inflate it, so be wary if the company is heavily borrowed.

Pass: 15% or more in most of the last five years.

If it fails: close the tab. Mediocre returns rarely improve without a fundamental change, and betting on that change is a harder game. See Return on Invested Capital for the full method.

Minutes 2 to 4: Is There a Visible Moat?

A full moat analysis takes hours. In the screen you are only asking whether there is clearly something protecting this business.

Check the gross margin trend

Gross margin is revenue minus the direct cost of the product, as a percentage of revenue. A stable or rising gross margin over five to ten years suggests pricing power: the company can raise prices at least as fast as its costs. Buffett has called pricing power the most important thing in evaluating a business.

A shrinking gross margin means the company is losing ground to competitors, to rising costs, or both. An airline, where fuel is a huge cost and customers shop mainly on price, tends to see margins swing with the oil price. A strong consumer brand tends to hold its margins year after year.

Ask the two-minute question

Why can’t a well-funded competitor take this company’s customers tomorrow? If the answer is obvious (high switching costs, a network that gets stronger with each user, a trusted brand, a cost advantage from scale) keep going. If the business seems to compete mainly on price or convenience, that is a warning.

Pass: stable or rising gross margin and an obvious answer to the question. The deeper guide is How to Spot a Competitive Advantage (Moat) in Any Business.

Minutes 4 to 6: Is Management Diluting You?

A full management review means reading proxy statements and shareholder letters. The fastest proxy for alignment is the share count.

How to check: look at diluted shares outstanding for each of the last five years on the income statement.

Pass: flat or falling. That means management is not handing your ownership to employees through heavy stock-based pay, or funding growth by issuing shares.

If it fails: a rising share count means earnings per share can grow while your slice of the company shrinks. It is not always fatal, but it needs a good explanation before you go further.

Minutes 6 to 8: Is the Balance Sheet Clean?

A business with excellent economics can still be a terrible investment if it carries too much debt. Debt magnifies everything, and bad years always come eventually.

How to check: add short-term and long-term debt, subtract cash, and divide by EBITDA (operating profit plus depreciation and amortisation). Many sites show net debt / EBITDA directly.

Pass: 2.0x or less. Net cash is even better.

If it fails: above 2.0x, the company is relying on steady profits and open credit markets. Both tend to disappear at the same moment. Banks and insurers need different measures, so skip this test for them and use sector-specific ones.

Minutes 8 to 10: Is the Price in the Right Range?

Only now do you look at price. Free cash flow yield is free cash flow divided by market value. It tells you what cash return you would get if you bought the whole business today.

Pass: 5% or more. The business goes straight to the full research process.

If it fails: the business does not get rejected. If it passed the first four checks, it goes on your watchlist with a note of the price at which the yield would reach 5%. Quality is scarce. Price changes every day.

Worked Example: Screening Three Companies

Here are three hypothetical companies run through the screen with round numbers.

Check	Company C (software)	Company D (airline)	Company E (specialty chemicals)
ROIC, five years	20% to 25%	3% to 9%	16% to 19%
Gross margin trend	Stable at 75%	Swings 15% to 35%	Stable at 38%
Share count	Up 4% a year	Flat	Down 2% a year
Net debt / EBITDA	Net cash	3.5x	1.4x
FCF yield	2%	Not reached	5.5%

Company C passes criterion 1 and has a visible moat, but fails the dilution check. It needs a strong explanation before going further. Most likely: reject, or watch.

Company D fails at minute two. Low returns, volatile margins. No need to look further. That is two minutes well spent.

Company E passes all five. It earns a full research session.

In practice, most companies fail quickly. Out of every hundred you screen, expect only a handful to pass the first four checks.

How We Use This in the Five Criteria

The screen is a light version of the Five Criteria, using one number per criterion. It is designed to reject, not to approve. Passing the screen means “research this properly”, never “buy this”.

The house thresholds are the same ones used in the full analysis: ROIC of 15% or more, net debt / EBITDA of 2.0x or less, a flat or falling share count, and a free cash flow yield of 5% or more. The full test adds cash conversion, a named moat source with downturn evidence, insider ownership, interest coverage and a margin of safety. The Stock Analysis Checklist covers all fifteen questions.

Common Screening Mistakes

• Using one year of data. One good year is noise. Look at five.
• Screening on price first. A low P/E pulls you towards weak businesses. Price is the last check.
• Treating a pass as a buy signal. The screen only earns a company more of your time.
• Trusting a single data site blindly. Sites calculate ROIC differently. If a number is borderline, check the annual report.
• Ignoring companies that fail only on price. Those are your watchlist. They are often the best future ideas.

For the wider list, see The Most Common Stock Analysis Mistakes.

Your Next Step

Screen five companies you know this week, using the table above. Keep the survivors on a stock watchlist, and score the best one with the Five Criteria Investment Checklist. To build a steady supply of ideas to screen, read How to Consistently Find Great Stocks.

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About the author: Cameron Hayes is a senior investor relations and finance professional who has worked in IR at Nasdaq Copenhagen-listed companies including Nilfisk and Maersk Drilling. He holds an MSc from Copenhagen Business School and a BCom from the University of Ottawa, and founded Gingernomics to teach individual investors the Five Criteria framework. More about Gingernomics.

The content on Gingernomics is for educational and informational purposes only and does not constitute financial advice. Always do your own research and consult a licensed financial advisor before making any investment decisions. Past performance is not indicative of future results.