The Buffettology Workbook by MARY BUFFETT & DAVID CLARK

Author:MARY BUFFETT & DAVID CLARK
Language: eng
Format: epub
Publisher: Simon & Schuster
Published: 2001-07-15T00:00:00+00:00

1990

$1.18 →Present Value

1991

$1.00

1992

$1.20

1993

$1.36

1994

$1.62

1995

$1.71

1996

$1.89

1997

$2.50

1998

$2.86

1999

$3.30

2000

$3.70→Future Value

Get out your TI BA-35 Solar financial calculator. To calculate the company’s per share earnings annual compounding growth rate, treat the first year as your present value, in this case 1990’s earnings of $1.18. Then use 2000’s earnings of $3.70 as the future value. The number of years is ten. While your TI calculator is in financial mode, punch in $1.18 and press the present value key (PV), punch in $3.70 as the future value and press the future value key (FV), now punch 10 as the number of years, press the number of years key (N) and hit the CPT key followed by the %i key. You will get the annual compounding rate of growth for the ten years, which is 12.1%.

Do the same for the five-year period from 1995 to 2000, using as the present value 1995’s earnings of $1.71. The future value will be the earnings for 2000, $3.70. Five is the number of years. Punch the CPT key followed by the %i key and the calculator will tell you that your annual compounding rate of growth was 16.6% for the five-year period between 1995 and 2000.

These two numbers tell you several different things. The first is that the company has had a higher rate of earnings growth in the last five years than it did in the ten-year period from 1990 to 2000. The question you need to ask is: What were the business economics that caused this change? Was Gannett buying up its own stock, or was it investing in profitable new business ventures? Or was it simply seeing an increase in advertising revenue with a corresponding increase in profits?

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