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WARREN BUFFETT AND THE INTERPRETATION OF FINANCIAL STATEMENTS financial analysis



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Warren Buffett is one of the richest men in the world. One of the key components to his multi-billionaire success has been his ability buy companies with a sustainable competitive advantage. Think Coca-Cola, Moody’s or See’s Candy. For this video, we are going to see if we can mimic his success on how to make money, by learning how to identify companies with such a sustainable competitive advantage. More specifically, we are going to learn how to do this by analysing a stock market company’s financial statements – the income statement, the balance sheet and the cash flow statement. This is a top 5 takeaways video of “Warren Buffett and the interpretation of financial statements”, written by Mary Buffett and David Clark.

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Playlist on how to master stock market accounting:

Top 5 takeaways from Warren Buffett and the Interpretation of Financial Statements:

01:25 1. Consistency is King
03:32 2. What Warren Buffett is Looking for in an Income Statement
05:40 3. What Warren Buffett is Looking for in a Balance Sheet
08:00 4. What Warren Buffett is Looking for in a Cashflow Statement
09:50 5. When to Sell

TL;DW:

– When you are looking for a business with a durable competitive advantage, the keyword is consistency
– In the income statement, look for consistently growing net earnings and profit margins that consistently beat the competitors
– When observing the balance sheet, remember that the superior business has a high return on capital, that it seldom requires a lot of debt, and that retained earnings typically shows a steady growth
– In the cash flow statement, you want to make sure that the business is producing money for its shareholders, by examining its capital expenditures
– Even a fantastic business should be sold if you need money elsewhere, its competitive advantage is at stake, or if the price tag is at a crazy level

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My goal with this channel is to help you make more money and improve your personal finances. How to become a millionaire? There are many ways to get there – investing in the stock market, becoming a stock trader, doing real estate investing, or why not becoming an entrepreneur? But whether you are interested in how to invest in stocks or investing strategies for creating passive income with rental properties – I hope to be able to provide you with a solution (or at least an idea) here. Warren Buffett – the greatest investor of our time – says that you should fill your mind with competing ideas and then see what makes sense to you. This channel is about filling your mind with those ideas. And in the process – upgrading your money-making toolbox. .

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WARREN BUFFETT AND THE INTERPRETATION OF FINANCIAL STATEMENTS
financial analysis
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34 thoughts on “WARREN BUFFETT AND THE INTERPRETATION OF FINANCIAL STATEMENTS financial analysis”

  1. Are these things in the video that Buffette looks for in a company applicable only for an investor with big amounts of money, or is it also applicable for investors with smaller amounts of money?

  2. A guest on The Wall Street Journal Report spoke sometime last week about making over $631,000 in 4months with a capital of $100,000, which made me realize that as a beginner i have alot to learn, so please assist me with any pointers or tips that would help me make this much profit.

  3. When analyzing Apples BS, could we say that the increase of liabilities, which increases the leverage ratio, along with the repurchase of stocks may lead to an unreliable ROE?

  4. Overall
    Consistency RnD , debt , consistent growing earning, 10 year period, profitability, cost

    Income statement
    Net income consistent
    Gross profit / revenue = profit margin
    Compare with competitor
    High gross margin = more sale = greater profitability
    Net margin = net income / revenue , >20% = very strong, smooth business

    Balance sheet
    Retained earning = add / withdraw from company reinvesting its net income or not , steady growth = good reinvesting
    Increase dividend = less reinvest , vice versa
    Return on equity = measure efficiency company use reinvested earning
    Net income / total equity = return of equity
    Little to no long term debt

    Cash flow statement
    Capital expenditure = spent on properties, plant, equipment
    Capital expenditure/ net income = lesser better
    <25% very good <50% acceptable

    Augmented pay out ratio = share buyback / dividend = more % = better

    When to sell
    -Need more money for better investment
    -Company may lose its competitive advantage
    (local newspaper lose to online media)
    -During crazy bull market
    (fantastic business can be bad investment when you can acquire at crazy price)
    -PE ratio >40 should start considering selling even if you believe in economic of company

  5. Gross Margin > 40%
    Net Margin > 20%
    High Return On Equity , High Return On Net Tangible Assets
    Little To No Long Term Debt
    Less Than 4 Years To Pay Off Long Term Debt With Earnings
    Cap Expenditure/Net Income < 25% , <50% is acceptable

  6. Video seems to oversimplify a lot of things into ratios. I would prefer directly reading from good investors like buffett or graham for a more in depth look. It all depends on price and value, and high margin does not neccesarily indicate a strong brand – just most of the time. Investing is not all about looking at ratios, but interpreting these statements with qualitative thinking about the future of the business as well. Essentially future ROIC and future cash flows to the investor are the most important thing

  7. I would not be so sure about CocaCola with Healthy lifestyle becoming more popular, promoting of negative sugar effects and its taxation. 20 years ago who would have thought that Petrol cars will start rapidly dying out because of electric vehicles.

  8. 3:38 income statement
    5:48 balance sheet
    return on net tangible assets
    little to no long term debt
    8:09 cashflow statement
    capital expenditures lower than 25 good lower than 50 acceptable
    9:57 when to sell
    better investment
    lose of competitive advantage
    crazy bull market P/E ratio 40 or higher

  9. I think i disagree with old companies having less capex need than newer companies. Im very confident that coca cola have a ton of "technical debt", such as old and inefficient IT-infrastructure across their global network, that still has not been faced out. Because the company is enourmous, implementing new IT is a gigantic cost. Newer companies like snapchat is built for the present day, therefore more capex upfront, less capex later

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