The Greatest Deals of Warren Buffett by Glen Arnold

Author:Glen Arnold [Glen Arnold]
Language: eng
Format: epub
Tags: The Greatest Deals of Warren Buffett
Publisher: Jaico Publishing House
Published: 2022-04-25T00:00:00+00:00

He hastens to add that this equation will not lead to precise figures, “since (c) must be a guess – and one sometimes very difficult to make”. Nevertheless, owner earnings remain the key to establishing valuations for both individual shares and entire companies. He quotes John Maynard Keynes: “I would rather be vaguely right than precisely wrong.”133

When it comes to Scott Fetzer, Munger and he judged that element (c) was very close to $8.3m which, in this particular case, is exactly the same as the company deducted for ‘Depreciation of plant and machinery’ in its formal accounts for 1986, i.e. element (b) in the equation. In other words, the using up of capital items (tangible and intangible) roughly matches the expenditure needed on new capital items to maintain unit volume and the quality of the competitive position. Implicitly, they judged that, in this case, there is no need to add to the amount tied up in working capital year on year.

Table 5.2: Buffett’s owner earnings estimate for Scott Fetzer (1986)

$m

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