Warren Buffett’s 2014 letter to shareholders tells the amazing story of Buffett buying Berkshire Hathaway.
At the time Warren’s investing style, taught by Ben Graham, was to look for “cigar butt” stocks – stocks that were dirt cheap, but provided a “free puff” to investors willing to make the investment. Berkshire certainly could have filled that criteria, here is how Buffett tells the tale:
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We have previously discussed the more well known financial statements; the balance sheet, income statement and statement of cash flows, but there is one additional financial statement you will see listed within every company’s 10-k report, the statement of shareholder equity. Value investors like Warren Buffett consider information within this report as some of the most important and telling signs of a company’s health. Here is why:
Recall the most basic equation in finance:
Assets = Liabilities + Shareholder Equity
Or, said another way:
Shareholder Equity = Assets – Liabilities
So really, shareholder equity should be considered the net worth of the company, or what the company is worth if all its assets were sold and debts settled.
The Statement of Shareholder Equity depicts the value of the company and describes where that value comes from and how it has changed over time for investors. [continue reading…]
How do you determine whether a stock is a worthy long term investment? Here are a few questions to ask yourself before you make that next purchase. [continue reading…]
As another earnings season rolls around and companies EPS (Earnings Per Share) numbers are making headlines, here’s why you should pay particular attention to ROE (Return on Equity) instead. [continue reading…]
