Brian Feroldi

Named people in the world like Nelson Mandela

Person

Warren Buffet

Unified Twitter Taxonomy

Business personalities

Warren Buffett's favorite way to measure profit isn't Net Income or Free Cash Flow.

It's Owner's Earnings.

What is it? How to does it work?

In this thread, I'll walk you through the calculation: https://t.co/hHyyrCZrxI

Categories within Brand Verticals that narrow down the scope of Brands

Business Taxonomy

Brands, companies, advertisers and every non-person handle with the profit intent and related to foods & beverages such as snacks, soft drinks, beers.

Food & Beverage Business

Top level interests and hobbies groupings, like Food or Travel

Interests and Hobbies Vertical

Drinks

A grouping of interests and hobbies entities, like Novelty Food or Destinations

Interests and Hobbies Category

Generic Drinks

Interests, opinions, and behaviors of individuals, groups, or cultures; like Speciality Cooking or Theme Parks

Interests and Hobbies

Coffee

Imagine that you're opening a coffee shop.

You spend $100k on furniture &amp; fixtures that will last 10 years.
You spend $60k on coffee equipment that will last 3 years.

Here are your total annual operating costs: https://t.co/MZqK2hamyJ

Imagine that you're opening a coffee shop.

You spend $100k on furniture & fixtures that will last 10 years.
You spend $60k on coffee equipment that will last 3 years.

Here are your total annual operating costs: https://t.co/MZqK2hamyJ

🔎 I Teach Investors How To Analyze Businesses | Stock Fundamentals & Valuation Teacher | DM me “LEARN” for details | Free Accounting eBook (Link) ⬇️

Conversation about global finance and economies.

Global Economy

You make $1 million in revenue, so here's your income statement:

Revenue: $1,000k
Expenses: $450k
Pre-tax income: $550k
Taxes: $110k
Net Income: $440K

If you started with $105K in cash, how much do you have now?

You might think $105k (start) + $440k (profit) = $545k

But that's wrong.

Why? You forgot about the $30k in "non-cash" charges (depreciation). https://t.co/AM3gjobqGA

Your net income was $440K, but your operating cash flow was $470K.

So, can you safely withdraw that $470k from the business each year?

NO!

Here's why:

Inflation

In 2 years, you'll have to replace the coffee equipment (which cost $60k)

In 9 years, you'll have to replace the furniture (which cost $100k)

However, due to inflation, that equipment will be MORE EXPENSIVE in 2 and 9 years than it was initially!

Lets say those costs will be $70k &amp; $200k.

So, we have to set aside an extra $23k/year ($70k/3) and $20k/year ($200k/10) to pay for those future equipment costs!

That means the amount we can actually take out of the business is $422k ($470k - $23k - $20k)

Lets say those costs will be $70k & $200k.

So, we have to set aside an extra $23k/year ($70k/3) and $20k/year ($200k/10) to pay for those future equipment costs!

That means the amount we can actually take out of the business is $422k ($470k - $23k - $20k)

That $422k is "owner's earnings"

It's how much cash the business owner can safely withdraw each year *without* hurting the earning power of the business.

Buffett uses this number for all valuation calculations https://t.co/CYt1NVbRQj

Remember - there are multiple ways to measure "profits", each of which has its own flaws.

Free Cash Flow &amp; Owner's Earnings are the "best"

EBITDA &amp; Net income are the "worst" https://t.co/sXSF96oobq

Remember - there are multiple ways to measure "profits", each of which has its own flaws.

Free Cash Flow & Owner's Earnings are the "best"

EBITDA & Net income are the "worst" https://t.co/sXSF96oobq

Brands, companies, advertisers and every non-person handle with the profit intent related to Banks, Credit cards, Insurance, Investments, Stocks 

Financial Services Business

Brands, companies, advertisers and every non-person handle with the profit intent related to  marketing and advertiser agencies, publishers of magazines, newspapers, blogs, books

Publisher & News Business

E-books

A product taxonomy for labeling categories of products. 

Product Taxonomy

Learn to read an income statement, cash flow statement, and balance sheet, visually. This eBook contains nine of the most popular accounting infographics Brian Feroldi has ever made.

Financial Statement School

If you liked this thread, you'll love my free accounting infographic ebook.

Grab a free copy here: https://t.co/VlMx2NTlC1

Brand

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Access the lessons and resources that will enable you to find & read financial statements quickly. Made by Brian Feroldi, Brian Stoffel, and Brian Withers, the creators of Financial Statements Explained Simply.

Financial Statements School

Want a free copy of my accounting infographic ebook?

Get it here: https://t.co/76KwYzBt3S https://t.co/cdcIc4uxpQ

🔎 I Teach Investors How To Analyze Businesses | Stock Fundamentals & Valuation Teacher | DM me “BUFFETT” for courses | Free Accounting eBook (Link) ⬇️

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