STEP 1 - Is the business generating enough profits to cover its cost of capital? We know that the accounting profits reported quarterly by the business do not correctly indicate whether the business is making money. Therefore to answer this question, we need to take a look at the EVA® for the quarter, which represents the excess money made by the business for the quarter AFTER covering its cost of capital.

STEP 2 - Do knowledge assets dominate the business? Next, we take a look at whether the business is making money primarily from its Knowledge Assets, since such assets are a source of competetive advantage for the business. Knowledge Basis (KB), which is a ratio of the Intellectual Capital of the Business to its Intrinsic Worth, should ideally be more than 50% on a sustained basis for this purpose.

STEP 3 - Is the stock undervalued? Finally if both the STEPs above are affirmative, we look at whether the stock is undervalued by the market. That's how simple it is to select quality stocks for your portfolio, using the power of Intellectual Capital. Go ahead, check it out.