"It has become increasingly important to learn more about the foreign markets in which a business derives its earnings." -Shearn

Investors often assume high growth and more profit when companies expand into new markets. Understanding the history, costs, and growing pains attached to each country is essential.

1. How long has the business been operating in the foreign market?

• Find out when they expanded into the market and why.

2. Is the business investing in R&D to adapt its products to the specific tastes of the customers in a foreign market?

• "It is difficult for most businesses to sell the same product or service it sells in one market to all markets without adapting it in some way."

• Find out how much the company is committing to R&D to adapt in the new market.

3. Has the management team assigned a specific regional manager to emerging markets?

• "It's a red flag when a regional manager oversees both emerging and developed markets."

• Different markets require different strategies.

4. Is revenue growth translating into profit growth?

• When a company expands, the topline increases immediately, while the bottom line might take longer. Look at the margins over time and ensure they are headed in the right direction.

• Review the margins before expansion and after.

5. What are the risks to a company's foreign earnings?

• "You need to understand the risks of doing business in each of the countries where a business earns more than 10% of its revenue."

• Success in one country doesn't automatically translate into the next.

• "You need to determine how a business protects itself against currency changes and how it hedges." *Look at the notes in the financial filings.

*Notes are from "The Investment Checklist" by Michael Shearn -Question 6 of "Understanding the Business - The Basics."