Warren Buffett, Earnings and Birdie the Early Bird

Take Away From Chapter Three - Strong Earnings

1. Warren Buffett seeks out businesses with strong, 10 year earnings track records, an indicator of strength and predictability.
2. This track record is found in the income statement.
3. An existing business has a track record in place.
4. A solid franchise has a track record in place.
5. A start from scratch, small business owner must develop and rely on projections to describe the earnings.
6. Common size statements can be used to determine if strong earnings are present at an industry level and can assist in troubleshooting earnings.
7. You can use the earnings of the business to project a future business value and discount to the present value to determine a reasonable purchase price.
8. McDonald’s is notorious for dumping useful and relevant mascots such as the Professor who spent his time inventing and researching new food patents in exchange for mascots whose usefulness is less apparent. Birdie the Early Bird for example is a “clumsy” bird who can’t fly and the McNuggett Buddies are, and I quote “a bunch of chcken nuggets in regular size.”[i]

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[i] McDonaldland mascots, Retrieved June 30^th, 2011 www.en.wikipedia.org/wiki/McDonaldland - wikipedia.com