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The Income Statement Summary Table

(DCA = Durable
Comments
Competitive Advantage)
>40% = D.C.A.
Consistency is Key
Gross Profit Margin
< 40% = competition eroding
margins
< 20% = no sustainable
competitive
advantage
< 30% is fantastic
Consistency is Key
SG&A
Nearing 100% is in highly
(SGA as % of gross profit)
competitive
industry
Company with moat tend to
Depreciation
have lower %
(depreciation costs as a %
of gross profit)
Durable competitive
Company with lowest ratio of
Interest Expenses
advantages carry little
interest to Operating
(interest expenses relative to
or
no
interest
expense.
Income
= competitive advantage.
operating income)
Buffetts favorite consumer
Varies widely between
products have
industries.
<15%
Net earnings history >20% = consistency and upward LT trend
Net Earnings
Long Term
(% net earnings to total
moat
revenues)
< 10% = in highly
competitive business
10-year period showing
Consistency = sign products
EPS
consistency and
dont need to change.
upward trend.
Upward trend = strong
Avoid erratic earnings
pictures.

The Balance Sheet Summary Table

(DCA = Durable
Competitive Advantage)
lots of cash and marketable
securities + little debt

Comments

Test to see what is creating cash by


looking at past 7 yrs of balance
sheets
Look for an inventory and
inventories that spike up/down are
Inventory
net earnings that are on a indicative of competitive industries
corresponding rise
prone to (boom/bust)
consistently shows lower %
d.c.a. no need to offer generous
Net Receivables
net receivables to gross sales
credit
than competitors
increase in goodwill over
d.c.a.s never sell for less than BV
Goodwill
number of years assume
because company out buying
companies >BV
can have valuable assets on tells us about investment mindset of
LT Investments
books at valuation < market
management
price (booked at
(Looking for d.c.a.?)
lowest price)
Internally developed brands
Intangible Assets
not reflected on BS
Higher return the better (but:
Capital = barrier to entry
Total Assets + ROA
really high ROA may
(Measure efficiency using
indicate vulnerability in
ROA)
durability of c.a.)
financial institutions. Buffett
ST Debt
shies from those who are
bigger borrowers of ST than
LT debt
d.c.a. need little or no LT
LT Debt Due
debt to maintain operations
d.c.a.s dont need liquidity
Total CL + Current Ratio higher the ratio, the more
liquid, the greater its ability
cushion so may have <1
to pay CL
LT debt load for last ten yrs. earning power to pay their LT debt
LT Debt
ten yrs w/ little LT debt =
in <3/4 yrs = good candidates
d.c.a.
Cash and Equivalents

Total Liabilities +
Treasury Share-Adjusted
debt to Shareholder Eq
Ratio
Preferred + Common
Stock
Retained Earnings
Treasury Stock

Return on Shareholder
equity

If <.80, Good chance


company has d.c.a.

in search for d.c.a. we look


for absence of preferred
stock
Rate of growth of RE is good
indicator
presence of treasury shares convert ve value of treasury shares
and a history of buyback are into +ve and add shareholder eq.
good indicators that
Divide net earnings by new
company has d.c.a.
shareholders eq. give us return on
equity minus dressing.
d.c.a. show higher than
If company shows history of strong
average returns
net earnings, but shows ve sholder
on shareholders equity
equity, probably d.c.a. because
strong companies dont need to
retain

The Cash Flow Statement Summary Table

Capital
Expenditures

Stock Buybacks

(DCA = Durable Competitive


Advantage)
historically using
< 50% then good place to look for d.c.a.
< 25% probably has d.c.a.
indicator of d.c.a. is a history of
repurchasing/retiring its shares

Comments
Add up total cap exp for ten-yr
period and compare
w/ total net earnings over
period.
Look at cash from investment
activities. Issuance
(Retirement) of Stock, Net