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Strategies & Market Trends : Fundamental Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Spekulatius who wrote (1756)	4/29/2012 9:51:45 PM
From: Sergio H	1 Recommendation Respond to of 4720

I'm sure he meant Net Income to Total Revenue must be greater than 20% and not Net Earnings. BTW , WEB reduced the ratio to 10% for undiscovered companies.

To: Spekulatius who wrote (1756)	4/30/2012 2:43:39 PM
From: bruwin	2 Recommendations Respond to of 4720

Hi there Clownbuck. I just want to make sure I’m following your question, ”are you sure about the net earnings > 20% of revenues”, correctly, because Sergio H appears to think that your reference to “net earnings” may not be the same as “Net Income”. If that’s the case then below is a copy of a scan of one of the pages of Mary Buffett and David Clark’s book, “Warren Buffett and the Interpretation of Financial Statements” ... ... on page 25 the authors refer to the Bottom Line of the Income Statement as “Net Earnings” and I used their reference in my summary. On the other hand, if your question referred to the most unlikely event that an industrial type company could ever achieve a Net Income (or Bottom Line) > 20% of Revenue, then I’d go along with the contention that it’s certainly not an easy target to achieve, but there again, it does happen. Below are two of Buffett’s favoured companies, Coca Cola and Johnson and Johnson. Over the last 5 year’s worth of Annual Results, KO exceeded the 20% ratio on 3 occasions, while JNJ beat it on 2 occasions. KO. 2010 :- 11809/35119 = 33.6%. 2009 :- 6824/30990 = 22.0%. 2007 :- 5981/28857 = 20.7% JNJ. 2010 :- 13334/61587 = 21.6%. 2008 :- 12949/63747 = 20.3%. According to the research of the above authors, Buffett (and Munger) are primarily interested in finding companies that have Durable Competitive Advantage, and it is generally these category of companies that show “a net earnings (or Net Income) history of more than 20% on total revenues”, as referred to on page 61 of their book.