American Capital Management, Inc. |
The objective of American Capital Management is to provide superior returns relative to the major market indices by investing in quality small and medium sized growth companies. Investment philosophy is to maintain a flexible equity and fixed income strategy and to invest primarily in companies that average $800 million in sales with growth potential 50% greater than the Standard and Poor's "500". Primary emphasis is on companies with managements of demonstrated competence, effective marketing organizations, strong research efforts and dominant market positions for their products. In addition, companies are selected that possess the necessary profitability and financial strength to support their growth. We believe that companies with these characteristics provide a favorable risk/reward ratio over time.
Portfolio Strategy - Management strategy emphasizes flexibility in the portfolio structuring process and equity commitments are maximized or minimized to capitalize on market volatility with minimum turnover over the longer term. A diversified list of companies is also used to compensate for the limited marketability inherent in this market sector. Emphasis is placed primarily on those companies which appear undervalued relative to the market and valuation levels.
Sales & Capitalization Guidelines - Concentration is on those companies with sales of $800 million and market capitalizations over $500 million. In general, companies with revenues of $100 million have achieved a reasonable level of management sophistication capable of guiding future growth. They have also developed beyond the entrepreneurial management phase with effective planning and operating skills because of the increasing complexity involved in reaching this sales level. The selection process is tailored to companies with capitalizations over $500 million to maintain a reasonable degree of liquidity.
Corporate Management - Management ability and depth is emphasized and companies selected for purchase possess a demonstrated ability in overcoming the challenges of growth. This includes success in product development, financial planning, market expansion, and the implementation of a changing organizational structure. Management must also possess a corporate growth plan to define the company's future direction, guide its operations and effectively utilize its assets to increase productivity and profits. These elements are necessary to successfully manage growth, attract quality executive talent and develop an improving image and investment sponsorship.
Financial Management & Profitability - We favor companies with high profitability and strong financial controls to support their growth and weather unexpected developments. Since smaller companies possess the inherent potential for superior growth, it is important to maintain operational flexibility with financial strength and a timely reporting system. Therefore, companies are selected that generally possess a favorable debt structure with the ability to support their growth through internally generated funds. This requires a high level of profitability and emphasis is on companies with a return on equity of 15% and pretax margins over 10%.