Earnings and the Consumer Monopoly

Take a look at Coke’s earnings per share for the past 10 years.

.	KO EPS
1999	$1.30
2000	$1.48
2001	$1.60
2002	$1.23
2003	$1.77
2004	$2.00
2005	$2.04
2006	$2.16
2007	$2.57
2008	$2.49
2009	$2.93

Although some dips do exist, in 2002 for instance, overall the earnings per share for Coke have been growing at 13.7% for the past 10 years. The small business owner will find earnings in the income statement although they will not be on an earnings per share basis.

The earnings for our hamburger stand may look something like this:

For existing owners, review your financial statements. If the income statement is not producing steady, growing earnings, why not? Can it be fixed?

For the start-up:

Consider this: even with good marketing research, the owner of a business start has no earthly idea what the business will actually do. At best marketing research is a good guess.

An entrepreneur who goes this route should give serious consideration to paying for quality marketing research.

The five methods:

1. Determining the market demand for your product or services and dividing it by the number of competitors in your market.
2. Taking a friendly non-competitor out to lunch and asking about revenue levels.
3. Reverse engineering the financials and determining the break-even.
4. Conducting primary research by asking the target market how much and how often.
5. Launching a small trial run.

This is the million dollar question: how much revenues will I generate? If you can answer it then you will have a million dollars. Remember, Warren does not invest in businesses without, at minimum, a 10 year track record. The entrepreneur with a pure business start is investing with a zero track record of earnings.

Application

Review the income statement on a regular basis.

Understand that as sales dip, expenses must be monitored and cut in order to maintain a steady level of earnings year after year. Some expenses such as the light bill and rent will remain static.

Maintain efficiencies and expand in good investments that reap large rates of return.