The compound annual growth rate of book value per share over three years. Warren Buffett emphasizes book value growth as a proxy for intrinsic value growth. Above 8% is solid for most companies.
Formula
Description
Compound annual growth rate of book value per share over three years. Warren Buffett has long emphasized book value growth as a proxy for intrinsic value growth, especially for asset-heavy businesses. Growing book value means the company is accumulating economic value.
Interpretation
Above 8% is solid. Compare to ROE: high ROE with low book value growth often means the company is returning most earnings to shareholders. Declining book value may indicate losses, excessive dividends, or heavy buybacks above book value.
Related Quality Indicators
The percentage of revenue left after paying all operating expenses but before interest and taxes. This shows how efficiently the core business runs. Above 15% is generally strong. Consistently expanding margins signal improving business quality.
The percentage of every revenue dollar that becomes bottom-line profit after all expenses. Above 10% is strong for most industries. Persistently high net margins often indicate a company has a competitive moat protecting its business.
Profitability before the effects of debt, taxes, and depreciation. Useful for comparing companies across different tax jurisdictions and capital structures. Above 20% is generally strong. Often used in merger and acquisition analysis.
The percentage of revenue that converts to free cash flow. This is arguably the most honest profitability metric because free cash flow is difficult to manipulate. Above 10% is strong. Capital-light businesses like software companies tend to have the highest FCF margins.
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