Potential investors will discover: A company with a net earning of more than 20% on total revenues has long-term competitive advantage.3. Plus, receive recommendations and exclusive offers on all of your favorite books and authors from Simon & Schuster. The financial statement informs you all of these lesser-known facts for free.Companies that profit over the long term consistently have higher gross profit margins. Coca-Cola also has 0% research and development costs.Interest expense is the interest paid on the debt the company carries as a liability. If the stock price didn’t increase in two years, he would sell it nevertheless.Here are a few things Buffett realized from Graham’s mentoring:1. 0000001822 00000 n People buy and sell stocks out of panic, hype, or erratic behavior. Exceptional companies have a durable competitive advantage.2. Goodyear has to pay 49% of its operating income to stand against the competition of the capital-intensive tire business.American corporations have to pay 35% of their income as income tax. 0000000788 00000 n Some stocks that were sold once they increased 50%, kept prospering for years.3. - Timothy P. Vick, senior portfolio manager, The Sanibel Captiva Trust Company, and author of 0000003015 00000 n 0000004709 00000 n 0000004151 00000 n She definitely takes advantage of the last name, but this book is great nonetheless. It suffers from the intense competition instead.Companies that spend a heap on research and development costs risk being superseded in their technology, patent, or new invention. Warren’s rule of thumb:1. The only predictable thing about the stock market is its volatility and unpredictability.Some hedge fund managers would drive stock prices up to insanely highs or lows in their speculative buying and selling frenzy.If one relies on computer speculation software or some arcane formulae, one would not be able to predict stock market crashes such as the European sovereign debt crisis in 2010. Anytime there is a newer technology, it might lose its edge over its competitors. 0000050198 00000 n If these investments were held for the long term, one could defer the capital gains tax so that his investment could compound year after year.Super-companies gain a competitive advantage by selling a unique product (Coca-cola) or a unique service (American Express). Inspired by the seminal work of Buffett's mentor, Benjamin Graham, this book presents Buffett's interpretation of financial statements with anecdotes and quotes from the master investor himself. 0000002974 00000 n His international bestselling investment books, coauthored with Mary Buffett—"Just as top musicians memorize scales, and the best golfers perfect swings at the driving range, investors who want sustainable, good returns must master the critical basics that Mary Buffett and David Clark lay out for us in this clear explanation of Warren Buffett's methods. It is an excellent primer for understanding financial statements. Everything Ford earned, profits were channeled back onto selling its cars.If the selling, general and administrative expenses of a company vary wildly across the years, then it doesn’t have a sustainable competitive advantage. Moody’s earns 31%. Warren suggests calculating percentages of gross profit margins or earnings-to-total-revenue ratio to make a fair comparison between companies.“…. Digital products purchased from this site are sold by Simon & Schuster Digital Sales Inc. Follow these methods and you will see results!" Consistency in high gross profit margins, little debt, massive earnings is all telltale signs that this is a super-company worth investing. Read Warren Buffett and the Interpretation of Financial Statements: The Search for the Company with a Durable Competitive Advantage book reviews & author details and more at Amazon.in. The income account shows the earnings for the period covered, while the balance sheet sets forth "the financial position" at the closing date. He mines for financial statements from:Financial statements do a better job than a shareholders’ annual report at revealing the fiscal information of a company truthfully.Warren looks for consistency in a company’s financial statements. Intel must spend at least 30% of their gross profit on researching new technology, otherwise, it would lose to the tech market competition.Companies that don’t have any research and development expense inherently have the long term economics work in their favor. When the stock price rises, he could gain profit from selling the stocks at a higher price.Graham warned against being caught up in the whims of the moody Graham never paid more than 10x a company’s earnings. Nor could one predict the 2020 global stock market crash as a result of COVID-19 pandemic-induced market instability.You never had to base your investment decision on the instantaneous velocity of stock prices rising or plunging in the short term, when you follow Warren Buffett’s rules on investing:1.
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