Buffett how to analyze the business income October 31, 200902:01  First financial daily

Liu Jianwei

　Buffett analysis of the first target profit table, in the first row, is operating income.

Operating income is the first target profit table, an index is the most important. The reason is the most important, because the business income is the foundation of all the profit, is the starting point for analysis of financial statements. You to learn any financial university, the analysis of Forecast Ltd's future earnings, the starting point is the analysis and forecast of revenue. We generally only see revenue a year short-term growth rate, while Buffett is more concerned with the long-term growth rate, he wants to see how much the past 5 to 10 years or even 20 years the growth rate of business income.

Buffett's acquisition of R. C. Willey furniture shopping malls, he found CEO Bill took over in 1954, operating income of only $250000, $342000000 in 1999, up 1368 times in 45 years.

Study found that financial statements Buffett acquisition of Helzberg diamond store, the company founded in 1915 as a shop in Kansas city in 1994, but has developed has 134 stores in 23 states group, operating income also increased from 10000000 US dollars in 1974 to $53000000 in 1984, 1994 increased to $282000000,

　Buffett will come from the two aspects of operating income growth rate:

　　First, the growth rate of business income and profit growth rate comparison, analysis of the gold content of growth.

Operating income is only a means, the real purpose of business is profitable. Comparison of the growth rate of income growth rates and pre tax profits, if the camp was very fast, but the profit growth rate is not fast, it may be a problem. Buffett likes most is pre tax profits faster than sales revenue growth rate.

His Blue Chip Stamps stamps operating income declined from $100000000 in 1972 to $12000000 in 1991, only 12% of the original; but in the same period of candy business income, but increased from 29000000 to 196000000 US dollars, an increase of 6.76 times, and the profit growth rate faster than business income, profit before tax from 1972 4200000 last year, to $42400000, an increase of 10 times more.

Pay attention to the business income of Buffett, but pay more attention to its gold content. He's so ironic that too much emphasis on revenue growth of large enterprises: "most institutions, including commercial institutions and other organizations, to measure yourself or by others to measure, and motivate subordinates management personnel, the use of standard is the most revenue size. Ask those big companies listed in the Fortune 500 company managers they ranked a few, they answer ranking number is certainly the revenue ranking. They don't know, if the operating income of the Fortune 500 ranking words according to the profit ability, their companies would be ranked in the first few.

Buffett has deep experience, he bought in 1965 Berkshire textile factory, 21 years after the operation, had to shut down in 1985. After 9 years, the textile business operating income amounting to more than $5, but the accumulated losses of $10000000. Although sometimes also gain, but always further back two.

I counted 8 famous in January 1, 1998 to October 28, 2009 shares rose to the highest, compared to the past 10 years operating income rose and pre tax profits rose, you'll find out, the stock rose and profits rose closer.

　　Second, the growth rate of business income and market share rate growth comparative analysis of competitive advantage.

I found, Buffett attached great importance to the company's operating income growth, the market occupancy rate has not increased at the same time. A measure of market share, one is business income, two with sales.

Buffett in the 1993 letter to shareholders said: the business income measure, Coca-Cola accounted for the global soft drinks market, 44% of the global market, Gillette razor blade 60%.

Buffett's Fruit of the Loom has obvious advantages in the men's underwear market, according to Wal-Mart, Target and other supermarkets, market share increased from 44.2% in 2002 to 48.7%, close to half. In the shopping mall lingerie market share rose from 13.7% in 2002 to 24.7% in 2005, increased nearly one times.

Segmentation of high market share of course is good, but for a very big market, market share increase of one percentage point of great significance.

In 1976 Buffett was on the verge of bankruptcy in the GEICO insurance company as investment, an important reason is that he found that, from 1936 to 1975 40 years, GEICO market share increased from 0 to 4%, becoming the country's fourth largest Motors Insurance Corporation, suggesting that companies use telephone marketing does not use a unique business model of insurance agent has great competition advantage, will make such rapid growth in a very competitive car insurance market. In 2005 GEICO market share increased to 6%, in 2008 reached 7.7%. Auto insurance is a huge market, market share growth is equivalent to 1% of the $1600000000 revenue growth. No wonder Buffett almost every year to compare the changes in GEICO market share.

If the company business income growth is quite large, but the declining market share, but that, the company's operating income growth rate lower than the growth of the industry level. If the decline in sales, sales also increased significantly, the market share will increase. 1990 sales bleak jewelry industry, Buffett's Borsheim jewelry store operating income rose 18%.

Buffett emphasizes, investment is the key to the analysis of a firm's competitive advantage, especially the sustainable competitive advantage. The analysis of the company's market share growth, analysis is an important index of its sustainable competitive advantage.

Analysis of 8 famous in front China stock market rose to the highest, in their respective market segments share are come out in front and even market leader.

Buffett analysis of the sales revenue growth is very meticulous, he also analysis many indicators, in order to determine the efficiency of sales income, such as the same store sales growth rate, per square meter sales growth rate, different products and different areas of contribution to income etc..

(the author is Tianfu health fund management company's Investment Management Division)