How Warren Does It Essay

897 words - 4 pages


When Warren Buffett began his record setting career as one of America’s most well known and successful investors, he followed a simple set of criteria for his nonstop pursuit of company greatness. This three part series will briefly investigate his time tested, systematic method of company analysis. In doing so, it will cover the basic fundamentals that Warren searches for when he takes a look at a company’s financial statements. Starting with the income statement, moving to the balance sheet and finishing with the cash flow statement, this article series will help investors no matter what their current level of expertise.

What does Warren Buffett look for in a company?

To put it quite simply, Warren looks for three basic company models:

The company sells a unique product.

The company sells a unique service.

The company is a low-cost buyer and seller of a product or service that the public has an ongoing need for.

With this basis for selection, Warren looks to choose from the overwhelming number of potential investments in the global marketplace. However, the underlying goal is to find a company with a durable competitive advantage. That is, Warren tries to find the company with a business model that not only meets one of the above three criteria, but also shows a history of consistent success.

The Income Statement

While there are several metrics that can be used to evaluate an income statement, the following ratios and comparisons are key to Warren. It is important to note that though broad generalizations can be helpful in initial analysis, the following list does not suggest a one-size-fits-all model and it should therefore be adapted to each individual industry.

Gross Profit Margin - Dividing a company’s Gross Profit (Revenue minus the Cost of Goods Sold) by its Revenue gives you the Gross Profit Margin. Warren believes to be a key determinant of company success. In reviewing this portion of the income statement, Warren looks for companies that show consistent growth and at least a Gross Profit Margin of 40% (though this can vary between industries).

Selling, General and Administrative (SGA) - In the case of SGA Expenses, Warren looks for companies that spend as little as possible. As a general rule, companies with SGA Expenses within 30-80% of their Gross Profit typically show some form of competitive advantage and therefore a chance for sustainable success. However, as with the Gross Profit Margin, companies will need to show a consistent history of low SGA Expenses as a percentage of Gross Profit.

Research and Development (R&D) - As with SGA Expenses, Warren looks for companies with low R&D Expenses, but for different reasons. In this case, Warren has discovered that companies...

Find Another Essay On How Warren Does It

What Does It Take to Be a Professional Chef and How Does It Affect the Industry

1794 words - 8 pages What Does It Take To Be A Professional And How Does It Affect The Industry? There are two approaches to becoming a professional in the culinary industry: going through an accredited culinary program or going straight into the field and learning from your experiences. Both of them have their pros and cons, but at the end of the day they both have an expectation to fulfill: to get things done. While identifying these pros and cons of a culinary

What does it have to say and how successfully does it convey its message?

1062 words - 5 pages the first film to the second, this was due to the attitude of Ariel’s speech and her expressions throughout this clip and how annoyed she was. The Camera shot in the 2011 film the camera shot was close up this was made for viewer feel as if the relationship meant something to both the daughter and father. Although Footloose does not focuses on the real issue behind the laws in the small town of Bomont, but explores how the lack of freedom

What Is Kickstarter And How Does It Work

1551 words - 7 pages who are behind Kickstarter, they invest their time and talents in providing information that is solicited by creators and backers concerning projects that they are involved in. They continuously look for other projects that they can share with people who are into arts and all its branches. Chapter 4: What Is Indiegogo And How Does It Work Indiegogo is another crowdfunding site or platform. This is where people who are into funding raising

What is Cloning and how does it work

1015 words - 4 pages By Jarrah CoeTeacher: Jenifer TrewrenIntroduction:The following report discusses cloning. It will describe what cloning is. How it is carried out on both, plants and animals, why we would clone, and how this technology can be used in the farming industry. This report will also discuss the advantages and disadvantages of cloning.What is Cloning?Cloning is the process of making one or even several organisms that are genetically identical to the

Problem's with the television - How does it affect peoples' mind?

539 words - 2 pages card from his teacher. He suggested sending the teacher poisoned candy as revenge as he had seen on television the night before. In California, a seven-year-old boy sprinkled ground-up glass into the the lamb stew the family was to eat for dinner. When asked why he did it he replied that he wanted to see if the results would bethe same in real life as they were on television. These are certainly startling examples of how television can affect the

Alcoholism: How does it affect the drinker’s health and life?

1664 words - 7 pages Alcoholism is an addiction to alcohol on extreme. Alcohol has severe and dangerous effects on human body and damages almost every part of the body; from brain to liver, everything is affected by its consumption. But the effects are not only limited to human body; alcohol does not only affect the drinker’s personal health and body, but it also damages the family and social life of him as well as his economic prosperity. Alcohol affects every

Left Brain Right Brain: How Does it Impact Learning?

1064 words - 5 pages Left Brain vs. the Right Brain: How Does This Impact Learning? According to Sprenger (1999), the brain is a fascinating organ composed of cells. The brain has many types of cells, but the neuron cells and the glial cells are the two most involved in learning. (Sprenger, 1999) Learning occurs when two neurons communicate. (Sprenger, 1999) Glial cells, nurture the neurons. (Sprenger, 1999) The top layer of the brain is the cerebrum. (Sprenger

Identity Fraud. What is it? How does it impact over 33 Million Victims since 1990? How does a person protect themselves from it?

2584 words - 10 pages viewed by anyone who has the "ability and desire to monitor it". Any way that you look at it, this is an infringement on your personal privacy. Cryptography has been around for hundreds of years and is used to send messages in secret. The encoded text makes it unreadable for any anonymous viewer, either hacker or stalker, who does not know how to decode the text. Encryption is the modern way that you can help protect and keep your personal

Does IT (Information Technology) Matter? A look at how IT helps businesses

1463 words - 6 pages Essay - Does IT Matter?In this day and age, it definitely can be said that IT is everywhere and integrated with everything that we use. IT has also enriched our lives in terms of how easily information is readily accessible; using this information enables us to make better-informed choices. In this essay, we are going to examine an article written by Nicholas G. Carr. A summary of Carr's main points will be written, followed by my opinion in

File Sharing and Online Piracy: How Does it Effect Copyrights? Is it Ethical?

1914 words - 8 pages through legitimate means does not transform the media from private property to the public domain. If this were the case, the entire integrity of the music industry as well as the economic structure that supports it would collapse. A survey taken among a group of students of age 14-25 years old, it can be deduced that the majority of them, approximately 66%, are aware of the legal consequences of using file sharing services illegally, but do it

How does violence in the media affect children and how should parents deal with it?

1038 words - 4 pages Does violence in the media affect people's social behaviour? A lot of research has been done on this matter. Even though the mass media cannot be solely blamed for the increase in violence this century, it is clear that the development has coincided with an increase in violence shown on television and video. According to the UN Children's Convention, children should be able to have access to information from the mass media which promotes

Similar Essays

What Do You Think Is The Importance Of Mary Warren And How Does Miller Present Her?

1268 words - 6 pages importance is evident in Act 1 through her role in the group of the girls. Miller does this to show what little power she has within the group at the start of the play, compared to the end, “Abby, we’ve got to tell. Witchery’s a hanging error…We must tell the truth.” From Mary Warren’s speech it is evident that she has little confidence and very shy as she is scared to admit to the other girls what they are doing is wrong and how they should

How Much Does It Cost To Save?

2368 words - 9 pages How Much Does It Cost to Save? The impact of software development offshore outsourcing has many economic and social impacts. Economically, India is thriving with GDP growth accelerating exponentially including having the potential to achieve double-digit growth.1 Meanwhile, in the United States, the numbers relating to developer jobs are quite the opposite. Most figures suggest that by 2015, roughly 3.3 million business-processing jobs

Monstrosity: How Does Society Define It?

4098 words - 16 pages armor” he envisioned himself to be. But as Lynn said, “out of sight does not mean out of mind.” (“Minding the Work,” 197). Unlike Jaques’ film counterpart, Hans from Tod Browning’s 1932 film Freaks was unable to isolate himself from being degraded by society and was not afraid of showing how he felt through emotions. Hans was a German dwarf performer in a circus. Often seen wearing a black tuxedo with a cute little black bowtie, his appearance was

Outsourcing How Does It Affect You?

1414 words - 6 pages Outsourcing How Does It Affect you? What is outsourcing and how is it affecting our lives here in America? Outsourcing which has also been called contracting out is when a company contract's jobs out to be done by a company within or outside of the company. This includes hiring temp agencies to handle part of the work load and hiring other companies to do certain tasks or other work. The ever more common trend of outsourcing to offshore