Everything to Know about ROIC, with Average ROIC by Industry Data
“A truly great business must have an enduring ‘moat’ that protects excellent returns on invested capital.” –Warren Buffett, 2007 Shareholder Letter Another quote from Buffett in his most recent shareholder letter concerning return on invested capital: “Well-managed industrial companies do not, as a rule, distribute to the shareholders the whole of their earned profits. In […]
How to Find Negative Retained Earnings in a 10-K – Does it Indicate Distress?
Stockholders’ equity, also called book value, is the company’s assets minus its liabilities. We talk about tangible book value when we value investors discuss shareholders’ equity. But what happens if a company has negative retained earnings, which drives the shareholder’s equity negative? Does this happen? Quick answer: you bet! Last week we discussed the statement […]
How to Find the Statement of Retained Earnings in a Company’s 10-K
When reading through any financial statements on annual reports, I always zoomed by the earnings statement because I didn’t know what it was. Or what retained earnings were on the balance sheet. Until recently, when I started reading through the Berkshire Hathaway Letters to Shareholders, I discovered the importance of retained earnings and their meaning. […]
Understanding Buffett’s Owner Earnings for Beginners
As we continue to get more and more into the weeds with Warren Buffett in his book, ‘The Essays of Warren Buffett’, he focuses on Owner Earnings in this chapter and just how skewed that they can become if you’re not evaluating them properly. Buffett begins the chapter by showing a balance sheet of two […]
Economic Goodwill vs Accounting Goodwill: What Warren Buffett Says
The next lesson that Buffett teaches us in his book, ‘The Essays of Warren Buffett,’ is the difference between economic goodwill and accounting goodwill. You might vaguely remember these terms from a previous accounting class or maybe they’re brand new concepts to you, but either way, let’s first define them so that we can all […]
Balance Sheet Analysis: 5 Important Ratios for Measuring Company Health
A good deal about the health of a company can be learned from conducting balance sheet analysis and this article will go in depth on a few of the most important concepts such as liquidity metrics including working capital, the current ratio, quick ratio and also leverage metrics such as the debt-to-assets ratio and the […]
What are Look Through Earnings and How Should You Apply Them?
In this next chapter of The Essays of Warren Buffett, Buffett talks about something called “Look Through Earnings”. To the average investor, you are likely unaware of the accounting practices that companies must follow when they invest in other companies, but I was extremely surprised when I read this chapter. If a company has an […]
An Example of Accounting Fraud as told by Warren Buffett
In this next section of The Essays of Warren Buffett, Buffett talks about the difference between investing and speculating and how sometimes it can really just be a big case of accounting fraud by the owners of the company if you’re not paying attention and sticking to the fundamentals. Buffett gives one of my favorite […]
How Reliable is an EPS Estimate? 10 Case Study Examples
Earnings Per Share – the #1 most talked about metric for a company’s quarterly results (based on my experience that is backed up by 0% statistics and 100% listening to my peers when discussing earnings). There’s so much emphasis put into a companies EPS and therefore, such a huge importance on EPS estimates. If you’ve […]
Stocks with Negative Shareholders Equity: Are They Good Investments?
In a recent episode of the Investing for Beginners Podcast Andrew and Dave take a deep dive into the financials for Starbucks and specifically key in on Negative Shareholders equity. I highly recommend that you take a listen to the episode to get a really good example of how this is applied when Andrew and […]
