How to analyze a business

Every ratio, standard, framework and model in the course is machinery for answering five questions about a business, faster and more reliably than the market:

1. What does it do and how does it make money?
2. Is it a good business — is ROIC durably above the cost of capital?
3. Is it run by good, honest, aligned people who allocate capital well?
4. What can kill it?
5. What is the price implying, and is that beatable?

Memorize them word for word this week, in order. You'll meet each one below through the two companies that recur through the whole course. DMart is Avenue Supermarts Ltd., in Indian grocery retail (NSE: DMART). Costco is a US membership warehouse retailer (Nasdaq: COST). All figures are illustrative, modeled on ~FY24/FY25 scale, so pull the actual filings, which the mini-project does.

How do you ask each question of a real company?

Question 1: What does it do and how does it make money? You want the mechanism behind the tagline: who pays, for what, how often, what it costs to deliver. At DMart, customers pay at ~400+ large-format, mostly owned stores for groceries priced visibly below competitors every single day. There are no sale events, just an everyday low price. DMart buys huge volumes cheap, pays suppliers unusually fast in exchange for extra discounts, and runs lean. At Costco, households pay a membership fee (~$65–130/year) for the right to shop warehouses selling bulk goods near cost, and most of the operating profit comes from the fees. One label, "discount retail", covers two different machines. If you can't answer question 1 in plain language, nothing downstream is safe. (Phases 1, 4–5.)

Question 2: Is it a good business? "Good" has one meaning here: the business earns a high return on the money tied up inside it, and keeps earning it. That's the ROIC-versus-cost-of-capital test, and the lemonade ledger builds it from scratch. Size doesn't settle it. Neither does growth or fame. Margin doesn't either. DMart and Costco keep only ~₹4.75 and ~$2.9 of each 100 of sales, yet both are excellent businesses, because they spin their capital so fast that thin margins compound into fat returns. Follow the rupee and the dollar through each business and you'll see how. (Phases 2, 4, 5.)

Question 3: Is it run by good, honest, aligned people who allocate capital well? Managers control the cash. Each year they choose to reinvest, acquire, pay dividends, buy back shares, or repay debt, and those choices, compounded over a decade, matter as much as the business itself. You're also asking whether the reported numbers can be believed, and whether the people steering win when you win. India adds the promoter lens. A promoter is the controlling founder or family, and you'll learn to read their shareholding and share-pledging along with their related-party dealings. As a first taste, DMart's promoter group holds a very large majority, essentially unpledged, and reinvests nearly all profit into new stores. Costco is famous for obsessive cost culture and occasional special dividends. (Capital allocation, Phases 6 and 8, and the ethics thread.)

Question 4: What can kill it? This is inversion. Work out how a business dies before you admire how it grows. It might be a technology shift, a regulator, a debt wall, one customer at 60% of revenue, fraud in the books, a promoter treating the company as a wallet. For DMart, quick-commerce grocery delivery in Indian metros is the live bear case. For Costco, it's e-commerce and whether the membership stays compelling to the next generation. These are question-4 answers even though nothing is wrong today, because your job here is mapping fragility, which is different from predicting doom. (Phases 2, 5, 7, 9.)

Question 5: What is the price implying, and is that beatable? Often you'll invert the machine. Take today's price, solve for the future it assumes, then judge that future. Both companies have habitually traded at demanding multiples: DMart's P/E often 80–100×, Costco's around 50× (as of mid-2026). Those prices imply decades more of high-return growth. A wonderful business can still be a poor investment at a price that assumes perfection, and a mediocre business can be a fine investment at a price that assumes catastrophe. (Phases 3, 8.)

Why this order matters. Questions 1 to 4 build your independent view of the business. Only then does the price enter, as a hypothesis to test. It's never an answer to justify. Run it in reverse and you become the market's lawyer instead of its judge, because once you know the price, every judgment bends toward it. That bend has a name, anchoring, and Phase 6 names the whole bias family it belongs to.

Where does the course teach each question?