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

( 47 )

Overview

With an insider's view of the mind of the master, Mary Buffett and David Clark have written a simple guide for reading financial statements from Warren Buffett's succccessful 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 ...

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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 guide for reading financial statements from Warren Buffett's succccessful 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 perfectcompanion volume to The New Buffettology and The Tao of Warren Buffett.

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Editorial Reviews

From the Publisher
"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. I don't think there has been a better time for investors to relearn the fundamentals. Follow these methods and you will see results!" - Timothy P. Vick, senior portfolio manager, The Sanibel Captiva Trust Company, and author of How to Pick Stocks Like Warren Buffett
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Product Details

  • ISBN-13: 9781416573180
  • Publisher: Scribner
  • Publication date: 10/14/2008
  • Pages: 224
  • Sales rank: 203,640
  • Product dimensions: 5.90 (w) x 7.60 (h) x 0.90 (d)

Meet the Author


Mary Buffett's own business acumen can be measured by her success as CEO of Superior Assembly, a very successful commercial and motion picture editing company, with clients including Madonna and Coca-Cola. She lives in Southern California.

David Clark is a portfolio manager and a leading authority on Warren Buffett's investment methods.

Karen White has been narrating and directing audiobooks for more than a dozen years and has well over one hundred books to her credit. Honored to be included among AudioFile's Best Voices 2010 and 2011, she is also an Audie Award finalist and has earned multiple AudioFile Earphones Awards for narration and direction.

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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

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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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Customer Reviews

Average Rating 3.5
( 47 )
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See All Sort by: Showing 1 – 20 of 47 Customer Reviews
  • Anonymous

    Posted October 3, 2008

    Great Book

    This is the Buffett book I've dreamed of for years - how he reads a financial statement. Yea, we all know he buys when others are fearful, but how does he know what to buy??? This is the book that tells us what he is looking for in a company's financial statement to see if it is a company with, what Buffett calls, a durable competitive advantage. It also tells us what price Buffett is willing to pay for it. 'Pay too much for even a great company and you lose.' And the great part about it is I actually can understand what the authors are talking about!!! They make it really simple and straight forward. I highly recommend this book!!!!

    3 out of 3 people found this review helpful.

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  • Posted October 23, 2008

    Great book

    Great book for beginner or intermediate investor.

    2 out of 3 people found this review helpful.

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  • Posted November 25, 2011

    more from this reviewer

    Warren Buffett and the Interpretation of Financial Statements

    Financial statements hold clues about the future performance of a company, and Warren Buffett¿s quest to find such clues has put him among the ranks of the wealthiest people in the world, according to Buffett experts Mary Buffett (his former daughter-in-law) and David Clark. Seeing the interpretation of financial statements through Warren Buffett¿s eyes is both instructive and insightful. He routinely calculates meaningful financial ratios from line items in financial statements to distinguish the most promising companies from the rest. Although financial novices may have the most to learn from this book, the authors include savvy bits of ¿Buffettology¿ for more seasoned investors¿ benefit. getAbstract recommends this book to readers who want a basic introduction to financial statement analysis and, perhaps more importantly, who want to learn how ¿the Oracle of Omaha¿ picks his winning investments.

    1 out of 1 people found this review helpful.

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  • Anonymous

    Posted February 22, 2010

    Long Term Investing

    Book has 50+ Chapters detailing a specific item as it may appear on a Corporate Balance Sheet with comments as to what Buffett may look for as an investment. Excellant reference book for investing Long Term.

    1 out of 1 people found this review helpful.

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  • Posted July 11, 2009

    more from this reviewer

    I Also Recommend:

    A book worth having to all who wish to be or are currently in the stock market

    Any fan of Robert Kiyosaki's book Rich Dad Poor Dad will love this book. It goes deep into the heart of financial statements. Anyone who wants to really be successful needs to read this book as it will probably change people's lives. If I could sum up in two words how valuable this book is when it comes to financial statements I would say "Warren Buffet". That is all that needs to be said about this book and how it will help anyone become a Billionaire. If you don't believe me, then you probably should stay away from the Stock Market.

    1 out of 1 people found this review helpful.

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  • Anonymous

    Posted May 23, 2009

    Before going to war, you must visit the Oracle.

    Completely demystified financial income statements, balance sheets, and cash flow summaries for me. And that ain't bad.

    1 out of 1 people found this review helpful.

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  • Anonymous

    Posted August 30, 2013

    Highly recommended.

    Written in a simple, easy to understsnd way for the non-professional investor. Provides insight into how Warren Buffett selects his companies and stocks. This book will benefit any investor.

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  • Posted February 17, 2011

    Finance Professional Stay Away

    I bought this book to try to gain further insight on how the master investor analyzes financial statements. This book is definately written for the person with NO (or very limited) knowledge of financial analysis. Shame on me for not looking into the audience it was written to assist. Waste of money if you have any financial understand of financials!

    0 out of 2 people found this review helpful.

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  • Posted November 24, 2010

    Recommended

    Still an important text for business. I saw a comment about Rich Dad Poor Dad on here and I don't see the connection -- I think fits more with Michael Patrick's Blueprint for Billionaires or Jim Collins' Good to Great; two very solid texts that actually help in business.

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