Warren Buffett’s Financial Statement Rules of Thumb

 

💰 INCOME STATEMENT:

1: Gross Margin
🧮 Equation: Gross Profit / Revenue
👍 Rule: 40% or higher
🤔 Buffetts Logic: Signals the company isn’t competing on price.

2: SGA Margin
🧮 Equation: SGA Expense / Gross Profit
👍 Rule: 30% or lower
🤔 Buffetts Logic: Wide-moat companies don’t need to spend a lot on overhead to operate.

3: RD Margin
🧮 Equation: RD Expense / Gross Profit
👍 Rule: 30% or lower
🤔 Buffetts Logic: RD expenses dont always create value for shareholders.

4: Depreciation Margin
🧮 Equation: Depreciation / Gross Profit
👍 Rule: 10% or lower
🤔 Buffetts Logic: Buffett doesnt like businesses that need to invest in depreciating assets to maintain their competitive advantage.

5: Interest Expense Margin
🧮 Equation: Interest Expense / Operating Income
👍 Rule: 15% or lower
🤔 Buffetts Logic: Great businesses don’t need debt to finance themselves.

6: Income Tax Expenses
🧮 Equation: Taxes Paid / Pre-Tax Income
👍 Rule: Current Corporate Tax Rate
🤔 Buffetts Logic: Great businesses are so profitable that they are forced to pay their full tax load.

7: Net Margin (Profit Margin)
🧮 Equation: Net Income / Sales
👍 Rule: 20% or higher
🤔 Buffetts Logic: Great companies convert 20% or more of their revenue into net income.

8: Earnings Per Share Growth
🧮 Equation: Year 2 EPS / Year 1 EPS
👍 Rule: Positive Growing
🤔 Buffetts Logic: Great companies increase profits every year.

⚖ BALANCE SHEET:

9: Cash Debt
🧮 Equation: Cash Debt
👍 Rule: More cash than debt
🤔 Buffetts Logic: Great companies dont need debt to fund themselves.

10: Cash Debt
🧮 Equation: Cash Debt
👍 Rule: More cash than debt
🤔 Buffetts Logic: Great companies generate lots of cash without needing much debt.

11: Adjusted Debt to Equity
🧮 Equation: Total Liabilities / Shareholder Equity + Treasury Stock
👍 Rule : 0.80
🤔 Buffetts Logic: Great companies finance themselves with equity.

12: Preferred Stock
👍 Rule: None
🤔 Buffetts Logic: Great companies dont need to fund themselves with preferred stock.

13: Retained Earnings
🧮 Equation: Year 1 / Year 2
👍 Rule: Consistent growth
🤔 Buffetts Logic: Great companies grow retained earnings each year.

14: Treasury Stock
👍 Rule: Exists
🤔 Buffetts Logic: Great companies repurchase their stock.

💸 CASH FLOW STATEMENT:

15: Capex Margin
🧮 Equation: Capex / Net Income
👍 Rule: 25%
🤔 Buffetts Logic: Great companies dont need much equipment to generate profits.

Caveats:
1️⃣ There are plenty of exceptions to these rules.
2️⃣ CONSISTENCY IS KEY!

https://tinyurl.com/yjfpd46s

Saul Alinsky’s 12 rules for radicals

 

Saul Alinsky was a very effective organizer and he developed the following rules for getting organized.  It is important to understand all of the tactics that might be called into play on any issue.  These rules are reported many places online but they are repeated here for completeness of this collection.

Here is the complete list from Alinsky.

RULE 1: “Power is not only what you have, but what the enemy thinks you have.” Power is derived from 2 main sources – money and people. “Have-Nots” must build power from flesh and blood. (These are two things of which there is a plentiful supply. Government and corporations always have a difficult time appealing to people, and usually do so almost exclusively with economic arguments.)

RULE 2: “Never go outside the expertise of your people.” It results in confusion, fear, and retreat. Feeling secure adds to the backbone of anyone. (Organizations under attack wonder why radicals don’t address the “real” issues. This is why. They avoid things with which they have no knowledge.)

RULE 3: “Whenever possible, go outside the expertise of the enemy.” Look for ways to increase insecurity, anxiety, and uncertainty. (This happens all the time. Watch how many organizations under attack are blind-sided by seemingly irrelevant arguments that they are then forced to address.)

RULE 4: “Make the enemy live up to its own book of rules.” If the rule is that every letter gets a reply, send 30,000 letters. You can kill them with this because no one can possibly obey all of their own rules. (This is a serious rule. The besieged entity’s very credibility and reputation is at stake, because if activists catch it lying or not living up to its commitments, they can continue to chip away at the damage.)

RULE 5: “Ridicule is man’s most potent weapon.” There is no defense. It’s irrational. It’s infuriating. It also works as a key pressure point to force the enemy into concessions. (Pretty crude, rude and mean, huh? They want to create anger and fear.)

RULE 6: “A good tactic is one your people enjoy.” They’ll keep doing it without urging and come back to do more. They’re doing their thing, and will even suggest better ones. (Radical activists, in this sense, are no different than any other human being. We all avoid “un-fun” activities, and but we revel at and enjoy the ones that work and bring results.)

RULE 7: “A tactic that drags on too long becomes a drag.” Don’t become old news. (Even radical activists get bored. So to keep them excited and involved, organizers are constantly coming up with new tactics.)

RULE 8: “Keep the pressure on. Never let up.” Keep trying new things to keep the opposition off balance. As the opposition masters one approach, hit them from the flank with something new. (Attack, attack, attack from all sides, never giving the reeling organization a chance to rest, regroup, recover and re-strategize.)

RULE 9: “The threat is usually more terrifying than the thing itself.” Imagination and ego can dream up many more consequences than any activist. (Perception is reality. Large organizations always prepare a worst-case scenario, something that may be furthest from the activists’ minds. The upshot is that the organization will expend enormous time and energy, creating in its own collective mind the direst of conclusions. The possibilities can easily poison the mind and result in demoralization.)

RULE 10: “If you push a negative hard enough, it will push through and become a positive.” Violence from the other side can win the public to your side because the public sympathizes with the underdog. (Unions used this tactic. Peaceful [albeit loud] demonstrations during the heyday of unions in the early to mid-20th Century incurred management’s wrath, often in the form of violence that eventually brought public sympathy to their side.)

RULE 11: “The price of a successful attack is a constructive alternative.” Never let the enemy score points because you’re caught without a solution to the problem. (Old saw: If you’re not part of the solution, you’re part of the problem. Activist organizations have an agenda, and their strategy is to hold a place at the table, to be given a forum to wield their power. So, they have to have a compromise solution.)

RULE 12: Pick the target, freeze it, personalize it, and polarize it.” Cut off the support network and isolate the target from sympathy. Go after people and not institutions; people hurt faster than institutions. (This is cruel but very effective. Direct, personalized criticism and ridicule works.)

24 Do's and Don'ts of Social Media

 What are the basic rules you should follow when developing your social media content and social media strategy?

To help marketers and business owners succeed, social media guru Angie Gensler created an infographic (below) that covers 24 essential do's and don'ts.

It looks at some key approaches that you should definitely take, such as varying your post types and narrowing your focus.

The infographic also delves into approaches not to take, such as focusing on vanity metrics and being overly promotional.

https://cutt.ly/C7LIaYf

The Rules to increase market share

The Rules to Increase Market Share and Mistakes to Avoid

Every successful company or organization must be driven in a constant quest to increase market share. And there are rules to increasing market share. However, most companies fall far short of all the projections and annual planning.

When the chips are finally counted and the level of success is finally evaluated on a spreadsheet, expectations rarely meet reality. Even if the expectations are met, the real measure of success is not just in the percentage of growth in your market share. But in your measure of growth compared to competitors in your category.

Who Wins?

The REAL winner is the one whose growth comes at the expense of another competitor in the market. When individual revenues increase but lags the category, you are losing. You must win at someone else’s expense because, whether you want to admit it or not, most categories are mature. The only way to grow is to steal market share from the competition.

Here are some basic rules to grow market share and steal customers from your competitors — and some marketing mistakes to avoid.

Rules to increase market share. Rule number 1 — Never Believe Everything You Hear.

Don’t believe the internal hype surrounding your brand’s importance to the customer. This view is myopic because our own brands are never as important to our customers as it is to us. Being successful at increasing market share is hard earned — and you earn it by knowing more about your customer then anyone else in the category. Only then can you align your strategic brand and tactical marketing messages to reflect that knowledge.

It is not enough to know the demographics and usage habits of your customers or prospects. You must find what drives trial and incites loyalty beyond traditional product features and attributes. Product features and benefits provide the keys to opening the gate for entry in a competitive category.

The attributes that provide marketers with so much pride are rarely why a customer prefers one brand to another. If choice were always about product features and benefits, all market leading (winning) brands would have the best features and pricing. Are you the market leader? Does no one in your category have equal (or superior) service or product? Enough said. It is possible to live and die by features and attributes alone.

Get everyone on board

You are most likely the market leader if your R&D department keeps you miles ahead of the competition and your advertising budget is so large that you are always in the face of your prospects and customers touting your NEW AND IMPROVED.

To increase market share and win, you must up the ante onbeing smarter than the competition rather than focusing on simply being better. Your prospect/customer believes the purchase decisions that they make to be germinal to their own sense-of-self.

This sense-of-self is a more important factor in the mechanism of choosing than any product feature you can possibly imagine.

This is an emotional (right brain) value that R&D has no part in. The left-brain part of the purchase decision is reflected in the CATEGORY choice.

The logical part of all this

This is the cognitive part of the equation. This means that, when a customer seeks a solution, they evaluate product benefits to decide which category of offering they will choose. For example, if someone is purchasing an oven for their home, they will first choose a category of solutions — microwave, conventional, or convection oven.

Once they decide which of these category choices is the right decision, they will then seek out those players in that category. But how do they decide whether they want a VULCAN, Amana, GE, KitchenAid, or Jenn-Air?

That decision is not based on cognitive thinking. They will all cook food well. No, the final leg in the decision tree is an emotional evaluation and choice. It is a choice based on what the brand means to them rather than what the product does or does not do.

If you understand your customer better than the competition does, you will be in a position ensure that your brand promises more of “THAT” whatever “THAT” turns out to be. What we can promise is that “THAT” will not be about the benefits and features of your product or service. (Although features may fulfill the brand. But features alone are unemotional and unpersuasive.) Instead, “THAT” will be about who the prospect believes they are at the moment of purchase and how much your brand reflects their own beliefs about whom they aspire to be.

Rule to increase market share. Rule number 2 — Don’t’ Believe Your Own Hype

It is easy to get caught up in the self-serving belief that your product, people, and expertise are better than the competition.

You know the story — “We have better people!” Banks(i.e. Bank of America, Chase, and Wells Fargo), pharmacies (i.e. Walgreen’s CVS, and Rite Aid), and automobile dealerships (i.e. Ford, GM, Chrysler, KIA, Honda, and Volkswagen) are fond of building their marketing messages around this self-serving and foolish idea.

Let’s face facts — we all draw our employees from the same pool of workers. It is not only foolish to assume “our folks are better than your folks,” it is a ticket to certain disaster.

Being dispassionate must be your goal in developing a strategy. Factor out these category table stakes (the minimum requirements to gain permission to play in the category). Then create your marketing messages. At the same time, do everything you can to ensure that your work force is the best trained and best in the industry.

Think how many banks tout their table stakes (i.e. online banking, friendly people, and competitive rates). How many beer brands tout their table stakes (great taste, quality ingredients and a caring brew master)?

Destinations and Tourism brands want to increase market share too

Many destinations tout their table stakes (exotic locations, endearing natives and authentic cultures). Think how many automobile manufactures tout their table stakes (sexy design, great road handling and top-shelf engineering and attention to detail).

If all of these generic benefits were all that important, we would expect that there would be no Toyota, Budweiser, Apple, Walgreen’s, and Bahamas as market leaders. We would have a much more diverse market space with many main players.

So… forget all of those obvious and generic features and benefits. Look closer for real differences. Factor them out. What is left?

Then work as hard as you can to have the best tasting beer, best online banking site and friendliest employees. Just don’t expect your competition’s customers to choose your brand because of them. Do it because it is a best business practice not a marketing advantage

Rule to increase market share. Rule number 3 — Don’t Be Like the Market Leader

Copying the market leader is a major marketing mistake. When you copy the marketing message and style of the market leader, you are absolutely their very best friend. As long as Target and Kmart copy Walmart, they can expect Walmart to remain the runaway winner. Your strategy must be to be different.

Being a market leader has two distinct advantages.

1. Share of voice and top-of-mind awareness is often just enough. Woody Allen once said, “Half of success is just showing up.” As far as the market leader is concerned, he was mostly right.
2. Market also-rans are prone to copy the market leader’s successful messaging, which is a sure-fire way to help the market leader to keep on winning and remaining the king of the hill.

Think about this. Why should a customer choose AMD over Intel? The messaging and marketing looks the same and speaks to the same benefits. In a tie, who do you think wins? Why should a United Airlines customer choose to fly Delta Airlines if the messaging looks and feels the same?

Why should a computer purchaser choose Dell over HP? In each of these cases, the marketers believe they are communicating a benefit that matters to prospects. Mostly, they are preaching to the choir and helping the market leader lap the field.

Rule to increase market share. Rule number 4 — Be Consistent

Your greatest enemy is in confusing your brand strategy with your marketing tactics. Strategy always drives the tactics and ALWAYS remains consistent. Too many throw out their brand strategy because immediate results are not as successful as they initially hope. They panic. In most cases, there was nothing wrong with the strategy but the tactic used to deliver the message was flawed.

Napoleon once said that an Army that marches in the wrong direction and then turns around and goes back has made two mistakes instead of one. Toyota did not gain its market leadership by changing its brand marketing strategy on a whim.

Brand strategy is a long-term commitment and your own lack of commitment spells its doom.

When challenging a market leader, you need to be compelling. Be consistent so that the target market begins to see your brand as you have communicated it. Apple has changed tactics many times over the years. But its brand promise of the customer thinking differently and seeking simplicity has never waned.

Result — Be a Brand

Increasing market share at your competitors’ expense takes more than a catchy commercial and tagline. If your goal is to be smarter and better than your competition, you need to remain focused and disciplined. You need to have clarity in your brand space so that your potential customers can find you in the sea of choices that they are bombarded with everyday.

In such a competitive din of noise, with each demanding hatchling screaming, “Feed me,” your prospects will inevitable seek a means to simplify their decision process. Brand does that and nothing else does. Let your brand make it easier for them by reflecting the precepts and values that define their lives.