See's candies as well, a purchase price of $25 million, on revenues of $30 million, and $8 million in capital earning pre-tax profits of $5 million in 1972.
Wouldn't the simple formula be simpler if it was just operating income/invested capital rather than sales/invested_capital *operating margin/invested_capital? Aren't they just the same
I'm curious if there are any helpful examples from Buffett on how to think about operating leases. I know he talks about capitalizing these leases (as now required on the BS) but does it also make sense to adjust the OE or EBIT, etc. for the current lease expense.
I would say make sure it's consistent with itself (i.e., if you capitalize them then you need to adjust the EBIT) and consistent with economic reality.
Great post. How much do you think Buffett cares about working capital vs. PPE? Would he consider a company more "capital light" if it had the same tangible capital employed but it was in working capital vs PPE? I ask because I don't often see people subtract payables and accrued expenses but they do focus on capital investment.
Maybe an error in the buffet simple calculation? I could definitely be wrong thanks for the article!
Thanks, yes I just fixed it. It should say $0.0175 / $1.00 is 1.75%. It originally said $1.75 / $1.00.
Great eye, and thanks for letting me know!
See's candies as well, a purchase price of $25 million, on revenues of $30 million, and $8 million in capital earning pre-tax profits of $5 million in 1972.
Wouldn't the simple formula be simpler if it was just operating income/invested capital rather than sales/invested_capital *operating margin/invested_capital? Aren't they just the same
It is, and I should have gone further in explaining. By separating them you can get behind the drivers of ROC. Hope that helps!
One of your best one’s yet
Thank you, Helen!
I'm curious if there are any helpful examples from Buffett on how to think about operating leases. I know he talks about capitalizing these leases (as now required on the BS) but does it also make sense to adjust the OE or EBIT, etc. for the current lease expense.
I would say make sure it's consistent with itself (i.e., if you capitalize them then you need to adjust the EBIT) and consistent with economic reality.
Personally, I think it makes sense to capitalize them. It's the economic equivalent of a loan.
Great post. How much do you think Buffett cares about working capital vs. PPE? Would he consider a company more "capital light" if it had the same tangible capital employed but it was in working capital vs PPE? I ask because I don't often see people subtract payables and accrued expenses but they do focus on capital investment.