Following Buffet Steps of Investing

When measuring a company's reliance on debt, it's usually helpful to begin by examining its debt-to-equity (D/E) ratio. D/E can be easily calculated by dividing a particular company's total debt load by its shareholder's equity. Both of these key figures are located on the balance sheet. There's no hard-and-fast rule for evaluating this metric, but as a broad average for non-financial companies, it's usually wise to look for firms with D/E ratios below 0.50 (50%).

Time is the enemy of the poor business and the friend of the great business. If you have a business that's earning 20%-25% on equity, time is your friend. But time is your enemy if your money is in a low-return business.
25% ROE is best. And go with ROE > 15%

Look at ROE for more than 5 yr
looking at the current figure in isolation only tells part of the story, so check to see whether ROE has been falling, rising, or stable over time. Also, if a company has a particularly strong year, then its net income figure can be inflated, which can cause ROE to be exceptionally strong. Such one- or two-year blips have a tendency to fade quickly once the business environment becomes less favorable. Therefore, it's always important to examine ROE performance over a five- or ten-year period.

High ROE and Low D/E
By taking on additional debt, companies can effectively lower the amount of shareholder's equity they need to stay in business. By definition, this tends to inflate ROE. Therefore, its crucial to look for companies that have a high ROE and low D/E.

Cash Flow
One way to gauge a firm's cash flow production is to examine its free cash flow yield. This is calculated by dividing free cash flow by market capitalization, or the inverse of the Price/FCF ratio. A firm with a free cash flow yield of 10%, for example, generates 10% of its total market value in cash each year. That cash, in turn, can be used to pay dividends or fund share buybacks -- items that enhance shareholder returns.