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

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

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

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

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Overview

With an insider's view of the mind of the master, Mary Buffett and David Clark have written a simple, easy-to-follow guide for reading financial statements from Warren Buffett's successful 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 price

Once 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 Statements is the perfect companion volume to The New Buffettology and The Tao of Warren Buffett.

Product Details

ISBN-13: 9781416573180
Publisher: Scribner
Publication date: 10/14/2008
Pages: 224
Sales rank: 95,288
Product dimensions: 5.90(w) x 7.60(h) x 0.90(d)

About the Author

Mary Buffett is the coauthor of Scribner’s bestselling Buffettology series, and a contributor to HuffPost and the online magazine Thrive Global. Mary’s online school—BuffettOnlineSchool.com—provides monthly investment insights and helps students learn to build successful stock portfolios.

For over twenty years, David Clark has been considered the world’s leading authority on the subject of Warren Buffett’s investment methods. His international bestselling investment books, The Tao of Charlie Munger and those coauthored with Mary Buffett—Buffettology, The Buffettology Workbook, The New Buffettology, The Tao of Warren Buffett, Warren Buffett and the Interpretation of Financial Statements, The Management Secrets of Warren Buffett, Warren Buffett and The Art of Stock Arbitrage, and The Warren Buffett Stock Portfolio—have been translated into more than twenty languages and are considered “investment classics” the world over.

Read an Excerpt

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 two revelations —

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

2. How do you value a company with a durable competitive advantage?

— 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

Table of Contents

Introduction

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

Chapter 2: The Kind of Business That Will Make Warren Superrich

Chapter 3: Where Warren Starts His Search for the Exceptional Company

Chapter 4: Durability Is Warren's Ticket to Riches

Chapter 5: Financial Statement Overview: Where the Gold Is Hidden

Chapter 6: Where Warren Goes to Find Financial Information

THE INCOME STATEMENT

Chapter 7: Where Warren Starts: The Income Statement

Chapter 8: Revenue: Where the Money Comes In

Chapter 9: Cost of Goods Sold: For Warren the Lower the Better

Chapter 10: Gross Profit/Gross Profit Margin: Key Numbers for Warren in His Search for Long-Term Gold

Chapter 11: Operating Expenses: Where Warren Keeps a Careful Eye

Chapter 12: Selling, General, and Administrative Expenses

Chapter 13: Research and Development: Why Warren Stays Away from It

Chapter 14: Depreciation: A Cost Warren Can't Ignore

Chapter 15: Interest Expense: What Warren Doesn't Want

Chapter 16: Gain (or Loss) on Sale of Assets and Other

Chapter 17: Income Before Tax: The Number That Warren Uses

Chapter 18: Income Taxes Paid: How Warren Knows Who Is Telling the Truth

Chapter 19: Net Earnings: What Warren Is Looking For

Chapter 20: Per-Share Earnings: How Warren Tells the Winners from the Losers

BALANCE SHEET

Chapter 21: Balance Sheet in General

Chapter 22: Assets

Chapter 23: Current Asset Cycle: How the Money Is Made

Chapter 24: Cash and Cash Equivalents: Warren's Pile of Loot

Chapter 25: Inventory: What the Company Needs to Buy and What the Company Needs to Sell

Chapter 26: Net Receivables: Money Owed to the Company

Chapter 27: Prepaid Expenses/Other Current Assets

Chapter 28: Total Current Assets and the Current Ratio

Chapter 29: Property, Plant, and Equipment: For Warren Not Having Them Can Be a Good Thing

Chapter 30: Goodwill

Chapter 31: Intangible Assets: Measuring the Unmeasurable

Chapter 32: Long-Term Investments: One of the Secrets to Warren's Success

Chapter 33: Other Long-Term Assets

Chapter 34: Total Assets and the Return on Total Assets

Chapter 35: Current Liabilities

Chapter 36: Accounts Payable, Accrued Expenses, and Other Current Liabilities

Chapter 37: Short-Term Debt: How It Can Kill a Financial Institution

Chapter 38: Long-Term Debt Coming Due and the Troubles It Can Cause

Chapter 39: Total Current Liabilities and the Current Ratio

Chapter 40: Long-Term Debt: Something That Great Companies Don't Have a Lot Of

Chapter 41: Deferred Income Tax, Minority Interest, and Other Liabilities

Chapter 42: Total Liabilities and the Debt to Shareholders' Equity Ratio

Chapter 43: Shareholders' Equity/Book Value

Chapter 44: Preferred and Common Stock: Additional Paid in Capital

Chapter 45: Retained Earnings: Warren's Secret for Getting Superrich

Chapter 46: Treasury Stock: Warren Likes to See This on the Balance Sheet

Chapter 47: Return on Shareholders' Equity: Part One

Chapter 48: Return on Shareholders' Equity: Part Two

Chapter 49: The Problem with Leverage and the Tricks It Can Play on You

THE CASH FLOW STATEMENT

Chapter 50: The Cash Flow Statement: Where Warren Goes to Find the Cash

Chapter 51: Capital Expenditures: Not Having Them Is One of the Secrets to Getting Rich

Chapter 52: Stock Buybacks: Warren's Tax-Free Way to Increase Shareholder Wealth

VALUING THE COMPANY WITH A DURABLE COMPETITIVE ADVANTAGE

Chapter 53: Warren's Revolutionary Idea of the Equity Bond and How It Has Made Him Superrich

Chapter 54: The Ever-Increasing Yield Created by the Durable Competitive Advantage

Chapter 55: More Ways to Value a Company with a Durable Competitive Advantage

Chapter 56: How Warren Determines the Right Time to Buy a Fantastic Business

Chapter 57: How Warren Determines It Is Time to Sell

Appendix

Select Glossary of Terms

Acknowledgments

Index

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