Warren Buffett's Case Study: Financial Principles
Warren Buffett, known in the financial world as the "Oracle of Omaha", has reached the summit of business excellence and has become the most judicious financial investor and is admired the world over. Warren Buffett is an investor's icon with a magnificent ability to select companies that will yield great profit year after year.
Through Warren Buffett’s case study, we can see many financial principles. His principles aren´t very complex and you probably don´t have to be a mathematical or a social science genius to understand them. But in order to apply them you need a very conservative, clear and analytical character. Some few of those are following:
Economic reality, accounting reality: Buffett devotes most of his attention not to tracking share price but to analyzing the economics of the underlying business and assessing its management. He was the fundamental analyst of the business (Bruner, Eades & Schill, 2010).
Time value of money or value creation: Is the company cheap on a valuation level? This is the part of the Buffett magic that is hard to quantify because it deals with a company's intrinsic value. That's the value that goes beyond its liquidation value and includes all the many intangibles that are hard to put a figure on, such as the worth of a brand name. In general, Buffet will want to purchase a company that is available at a 25% discount to its intrinsic value (Christ, 2008).
Measure the performance by gain value creation and long term investment: Buffett's tool in measure the performance is return on equity or ROE. Buffett uses ROE as a measure of company has consistently performed over time vs. its peers (Christ, 2008).
Warren Buffett is a long-term investor, which means he doesn't buy for a quick buck but rather long-term returns. To quote Buffett, he has "an entrance strategy and not an exit strategy".
Buffett seeks to acquire great companies trading at a discount to their intrinsic value, and to hold them for a long time....
Through Warren Buffett’s case study, we can see many financial principles. His principles aren´t very complex and you probably don´t have to be a mathematical or a social science genius to understand them. But in order to apply them you need a very conservative, clear and analytical character. Some few of those are following:
Economic reality, accounting reality: Buffett devotes most of his attention not to tracking share price but to analyzing the economics of the underlying business and assessing its management. He was the fundamental analyst of the business (Bruner, Eades & Schill, 2010).
Time value of money or value creation: Is the company cheap on a valuation level? This is the part of the Buffett magic that is hard to quantify because it deals with a company's intrinsic value. That's the value that goes beyond its liquidation value and includes all the many intangibles that are hard to put a figure on, such as the worth of a brand name. In general, Buffet will want to purchase a company that is available at a 25% discount to its intrinsic value (Christ, 2008).
Measure the performance by gain value creation and long term investment: Buffett's tool in measure the performance is return on equity or ROE. Buffett uses ROE as a measure of company has consistently performed over time vs. its peers (Christ, 2008).
Warren Buffett is a long-term investor, which means he doesn't buy for a quick buck but rather long-term returns. To quote Buffett, he has "an entrance strategy and not an exit strategy".
Buffett seeks to acquire great companies trading at a discount to their intrinsic value, and to hold them for a long time....