Glossary

What each share is worth on paper — total assets minus all debts, divided by shares outstanding.

The smoothed annual growth rate of a number over multiple years, as if it grew by the same percentage each year.

The minimum annual return you'd accept — we use 15% as the hurdle for all projections.

How much profit the company earned for each share of stock outstanding.

Cash the business generates after paying for everything it needs to keep running and growing.

The gap between what you pay and what something is worth — your buffer against being wrong.

A smoothed 10-year earnings average used instead of a single year when earnings look unusually high or low.

Warren Buffett's measure of true earnings — operating cash flow minus the capital needed just to maintain the business.

How many years of current earnings you're paying when you buy a share at today's price.

The price at which you are buying the business at a 50% discount to our fair value estimate — your buy target.

For every dollar reinvested in the business, how many cents does it earn back each year?

Our estimate of what the company is worth today — the fair value you'd pay to earn exactly a 15% annual return.

A statistical method that calculates growth by considering all possible year combinations, not just first vs. last year.