Hot Features
Premium
Register to chat with like-minded investors on our interactive forums.
In 1987 Buffett dubbed Berkshire’s seven largest non-financial businesses the Sainted Seven. They were,
- Buffalo News
- Fechheimer
- Kirby
- Nebraska Furniture Mart
- Scott Fetzer Manufacturing Group
- See’s Candies
- World Book
These seven alone – leave aside Berkshire’s insurance subsidiaries and its stock market share investments – had combined operating earnings before deduction of interest and taxes of $180m in 1987. But that wasn’t the most exciting aspect – amazingly, this group managed to produce $180m of operating earnings using only $175m of equity. There wasn’t much debt, so interest was only a combined $2m, leaving $178m of operating profit.
(I’ll tell the story of Scott Fetzer, including World Book and Kirby, next week).
If they are viewed as a single company the after-tax earnings of that company would have been approximately $100m in 1987 – a return of 57% on equity capital.
To give some idea of how remarkable this is Buffett notes that Fortune compiled data on 1,000 companies (the 500 largest industrials and the 500 largest services companies) and found only six could manage an average return on equity of over 30% during the decade to 1987. None could get as high as 57% – the best being 40.2%.
Income of the Sainted Seven
| £m | Pre-tax earnings | Berkshire’s share of net earnings (after taxes and minority interests) plus $2m to allow for minority interests in the earnings of Fechheimer and NFM | Return (after tax and minority interests) on the $175m of equity capital allocated to these seven in 1987 | |||
| 1987 | 180 | 100 | 57% | |||
| 1988 | 191 | 117 | 67% | |||
| 1989 | 195 | 119 | 68% | |||
| 1990 | 203 | 123 | 70% | |||
| 1991 | 191 | 117 |
………………To read more subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1
