1. Does the business have an identifible consumer monopoly?

Customer monopolys provide predictable retain earnings, year after year, because of their positioning in the market. Customer monopolys are unlikely to be upset by a competitor in the same market space. Buffettology seeks to analyze companies with a toll-bridge business model, these are reoccurring services and provides that drive sustained revenue. The test for customer monopoly is determined by how much a investment banker will fund, if you should gain ownership rights for startup.

2. Are the earnings of the company strong and showing an upward trend?

The central theme of Buffettology is measure what the company does with its retain earnings long term. Working Capital=Current Liabilities less Assets, Return on Equity= Net Income/Working Capital * 100, and Earnings per Share = Net Income / shares.

Consistent retained earnings demostrates strength in the sector. Dividend payments diminishes the earning strength caused by taxation on the payment. Companies who year after year maintain above average return on equity demonstrate they know too get a return on their retained earnings investments. Consistent retain earning levels make long term prediction possible. Consumer monopolys create barieers for other competition factions to take away business. Knowing a predictable return on investment creates confidence and provides leveraging motivations for external investment.

Buying low priced securities helps increases the rate of return. Invest from an financial or accounting business perspective. Wait for the market to go down, to get the right price. Diversity does not necessarily product return on investment. All you need to know what to buy and at what price. Determine the kind of company you want ownership in and determine the sale price you will purchase at.

Finding the right price uses an technic called Intrinistic Value (IV). IV=Earnings/(.10) {Bond percent } *100. The share price must not exceed the IV price. This helps you determine the right price to buy. Look for a bargin in a qualified company. This requires patience.

3. Is the company conservatively financed?

Select companies that use retained earnings for financing than long term debt for financing. Debt finances growth, growth drives price higher, and interest compounding reduces earnings. So, conservatively financed companies do not take away earnings.

4. Does the business consistently earn a high rate of return on shareholder equity?

Shareholder equity=Companies assets less current liabilities. Return on Equity = After Tax Earnings / Shareholder Equity. Buffettology wants sustained return on equity of 12 to 15 percent.

Price of the share is used to determine when to buy and return on equity is used to determine when to sell. Look for bargin prices to buy, this requires patience. The goal is achieve predictability in the direction of the companies growth. Customer monopoly's are resistence to change and can leverage economy of scale to drive down price. Earnings are used to predict the likihood of consistent performance in the consumer sector. Drops in earnings could indicate shifts in consumer spending patterns and new emerging markets. Return on Equity tells you when to abandoned the company.

5. Does the business get to retain its earnings?

Companies that keep their retain earnings qualify for selection scrutiny. Dividends reward stock holders; however are subject to taxation. Select companies that retain their earnings to be used in the growth of their company. The earnings must exceed the rate of return of a bond.

6. How much does the business have to spend on maintaining current operations?

Exclude companies that channel a significant portion of their retain earning for repair and maintenance. Select companies that have low cyclic operation costs. In commodity based companies the low cost provider wins. Commodity based companies are the least appealing Buffettology investment because of their maintenance cost requirements.

7. Is the company free to reinvest retained earnings in new business opportunities, expansion of operations, or share repurchases? How good of a job does management do at this?

The goal is to increase the return on investment rates. This is an area is risky for consumer monopolies because they enter into businesses that are not their core competences seeking to growth larger. The fantasy of an every expanding company can cause losses which equates to abandonment of the investor. Buffett's philosophy is to "know what the business does" and determine "how well they know their business". Perhaps, this is the double edge sword to praise and to avoid dependant on the strength of response for the previous two statements.

Share repurchases seems like a good idea. Share repurchase remove debt owed to the shareholder. Less debt may mean a stronger financial.

8. Is the company free to adjust prices to inflation?

This may be an accounting question. Most accounting software packages can adjust for inflation in their accounting software.

9. Will the value added by retained earnings increase the market value of the company?

This is complex. Its starts with Present Value and use compounding to determine end value over a specific interval of time. In most cases the retain earnings will increase the end value; however, if the company is losing its consumer monopoly to a new market force than it should be abandoned.