1097
Investing Guidelines
Financial Tenets
T
he f inancial tenets by which Buffett values both managerial excel-
lence and economic performance are all grounded in some typi-
cally Buffett-like principles. For one thing, he does not take yearly
results too seriously. Instead, he focuses on four- or f ive-year averages.
Often, he notes, prof itable business returns might not coincide with the
time it takes for the planet to circle the sun.
He also has little patience with accounting sleight-of-hand that pro-
duces impressive year-end numbers but little real value. Instead, he re-
lies on a few timeless f inancial principles:
- Focus on return on equity, not earnings per share.
- Calculate “owner earnings” to get a true ref lection of value.
- Look for companies with high profit margins.
- For every dollar retained, has the company created at least a dol-
lar of market value?
RETURN ON EQUITY
Customarily, analysts measure annual company performance by looking
at earnings per share. Did they increase over the preceding year? Are
they high enough to brag about? For his part, Buffett considers earnings