So you’re thinking of buying a business or investing in a stock? First you need to learn the 9 most essential questions to ask when buying a business.
These questions are adapted from the book Buffettology: The Previously Unexplained Techniques That Have Made Warren Buffett The World’s Most Famous Investor by Mary Buffett and David Clark. Mary Buffett is actually Warren Buffett’s former-daughter-in-law. She says that Warren uses a similar line of questioning when he is thinking of buying a business.
Does the Business Have an Identifiable Monopoly?
Are the Earnings of the Company Strong and Showing an Upward Trend?
Is the Company Conservatively Financed?
Does the Business Consistently Earn a High Rate of Return on Shareholders’ Equity?
Does the Business Get to Retain its Earnings?
How Much Does the Business Have to Spend on Maintaining Current Operations?
Is the Company Free to Reinvest Retained Earnings in New Business Opportunities, Expansion of Operations, or Share Repurchases? How Good a Job Does the Management Do at This?
Is the Company Free to Adjust Prices to Inflation?
Will the Value Added by Retained Earnings Increase the Market Value of the Company?
To how to invest like Warren Buffett, be sure to read Buffettology by Mary Buffett and David Clark:
by Mary Buffett and David Clark
Mary Buffett, former daughter-in-law of this legendary financial genius and a successful businesswoman in her own right, has teamed up with noted Buffettologist David Clark to create Buffettology, a one-of-a-kind investment guide that explains the winning strategies of the master.
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Did I miss any questions to ask when buying a business? What do you ask when investing in companies? Let’s hear about it in the comments section, or shoot me an email.