Warren Buffett How He Does It

Have the profit margins been high over the years? Are they increasing?
What is return on equity for the firm over the last several years?
Return on equity measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested.
Has the company avoided excess debt?
What is the debt to equity ratio? (Total Liabilities / Shareholders’ Equity)

Buffett focuses on firms that have a competitive advantage. Any characteristic that is hard to replicate is what he calls a company’s economic moat, or competitive advantage. The wider the moat, the tougher it is for a competitor to gain market share.
Buffett shies away from companies whose products are indistinguishable from those of competitors and those that rely solely on a commodity (e.g., oil, gas) Warren Buffett – How He Does It

Is the stock selling at a 25% discount to its real value?
The investor must determine the intrinsic value of a company by analyzing a number of business fundamentals, including earnings, revenues and assets. What makes Buffett special is his ability to accurately determine a firms intrinsic value
And a company’s intrinsic value is usually higher than its liquidation value – what a company would be worth if it were broken up and sold today.
The liquidation value doesn’t include intangibles such as the value of a brand name, which is not directly stated on the financial statements.
Once Buffett determines the intrinsic value of the company as a whole, he compares it to its current market capitalization – the current total worth (price).
If his measurement of intrinsic value is at least 25% higher than the company’s market capitalization, Buffett sees the company as one that has value.

Highlights by David Willden