Warren Buffett and the Interpretation of Financial Statements : The Search for the Company with a Durable Competitive Advantage

by Buffett, Mary; Clark, David

ISBN13: 9781416575955

ISBN10: 1416575952

Pub. Date: 2008-10-14

Publisher(s): Simon & Schuster

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Summary

With an insider's view of the mind of the master, Mary Buffett and David Clark have written a simple guide for reading financial statements from Warren Buffett's succccessful perspective.Buffett and Clark clearly outline Warren Buffett's strategies in a way that will appeal to newcomers and seasoned Buffettologists alike. Inspired by the seminal work of Buffett's mentor, Benjamin Graham (The Interpretation of Financial Statements, 1937), this book presents Buffett's interpretation of financial statements with anecdotes and quotes from the master investor himself.Potential investors will discover: Buffett's time-tested dos and don'ts for interpreting an income statement and balance sheet Why high research and development costs can kill a great business How much debt Buffett thinks a company can carry before it becomes too dangerous to touch The financial ratios and calculations that Buffett uses to identify the company with a durable competitive advantage -- which he believes makes for the winning long-term investment How Buffett uses financial statements to value a company What kinds of companies Warren stays away from no matter how cheap their selling priceOnce readers complete and master Buffett's simple financial calculations and methods for interpreting a company's financial statement, they'll be well on their way to identifying which companies are going to be tomorrow's winners -- and which will be the losers they should avoid at all costs.Destined to become a classic in the world of investment books,Warren Buffett and the Interpretation of Financial Statementsis the perfect companion volume toThe New BuffettologyandThe Tao of Warren Buffett.

Introduction
Two Great Revelations That Made Warren the Richest Person in the World
The Kind of Business That Will Make Warren Superrich
Where Warren Starts His Search for the Exceptional Company
Durability Is Warren's Ticket to Riches
Financial Statement Overview: Where the Gold Is Hidden
Where Warren Goes to Find Financial Information
The Income Statement
Where Warren Starts: The Income Statement
Revenue: Where the Money Comes In
Cost of Goods Sold: For Warren the Lower the Better
Gross Profit/Gross Profit Margin: Key Numbers for Warren in His Search for Long-Term Gold
Operating Expenses: Where Warren Keeps a Careful Eye
Selling, General, and Administrative Expenses
Research and Development: Why Warren Stays Away from It
Depreciation: A Cost Warren Can't Ignore
Interest Expense: What Warren Doesn't Want
Gain (or Loss) on Sale of Assets and Other
Income Before Tax: The Number That Warren Uses
Income Taxes Paid: How Warren Knows Who Is Telling the Truth
Net Earnings: What Warren Is Looking For
Per-Share Earnings: How Warren Tells the Winners from the Losers
Balance Sheet
Balance Sheet in General
Assets
Current Asset Cycle: How the Money Is Made
Cash and Cash Equivalents: Warren's Pile of Loot
Inventory: What the Company Needs to Buy and What the Company Needs to Sell
Net Receivables: Money Owed to the Company
Prepaid Expenses/Other Current Assets
Total Current Assets and the Current Ratio
Property, Plant, and Equipment: For Warren Not Having Them Can Be a Good Thing
Goodwill
Intangible Assets: Measuring the Unmeasurable
Long-Term Investments: One of the Secrets to Warren's Success
Other Long-Term Assets
Total Assets and the Return on Total Assets
Current Liabilities
Accounts Payable, Accrued Expenses, and Other Current Liabilities
Short-Term Debt: How It Can Kill a Financial Institution
Long-Term Debt Coming Due and the Troubles It Can Cause
Total Current Liabilities and the Current Ratio
Long-Term Debt: Something That Great Companies Don't Have a Lot Of
Deferred Income Tax, Minority Interest, and Other Liabilities
Total Liabilities and the Debt to Shareholders' Equity Ratio
Shareholders' Equity/Book Value
Preferred and Common Stock: Additional Paid in Capital
Retained Earnings: Warren's Secret for Getting Superrich
Treasury Stock: Warren Likes to See This on the Balance Sheet
Return on Shareholders' Equity: Part One
Return on Shareholders' Equity: Part Two
The Problem with Leverage and the Tricks It Can Play on You
The Cash Flow Statement
The Cash Flow Statement: Where Warren Goes to Find the Cash
Capital Expenditures: Not Having Them Is One of the Secrets to Getting Rich
Stock Buybacks: Warren's Tax-Free Way to Increase Shareholder Wealth
Valuing The Company With A Durable Competitive Advantage
Warren's Revolutionary Idea of the Equity Bond and How It Has Made Him Superrich
The Ever-Increasing Yield Created by the Durable Competitive Advantage
More Ways to Value a Company with a Durable Competitive Advantage
How Warren Determines the Right Time to Buy a Fantastic Business
How Warren Determines It Is Time to Sell
Appendix
Select Glossary of Terms
Acknowledgments
Index
Table of Contents provided by Publisher. All Rights Reserved.

Excerpts

CHAPTER 1
Two Great Revelations That Made Warren the Richest Person in the World

In the mid-sixties Warren began to reexamine Benjamin Graham's investment strategies. In doing so he had two stunning revelations about what kinds of companies would make the best investments and the most money over the long run. As a direct result of these revelations he altered the Graham-based value investment strategy he had used up until that time and in the process created the greatest wealth-investment strategy the world has ever seen.

It is the purpose of this book to explore Warren's tworevelations --

1. How do you identify an exceptional company with adurable competitive advantage?

2. How do you value a company with a durable competitiveadvantage?

-- to explain how his unique strategy works, and how he uses financial statements to put his strategy into practice. A practice that has made him the richest man in the world.Copyright © 2008 by Mary Buffett and David Clark

Excerpted from Warren Buffett and the Interpretation of Financial Statements: The Search for the Company with a Durable Competitive Advantage by Mary Buffett, David Clark, David Clark
All rights reserved by the original copyright owners. Excerpts are provided for display purposes only and may not be reproduced, reprinted or distributed without the written permission of the publisher.