Buffett Quality

# Buffett Quality — scoring rules

Style: the Buffett/Munger approach of owning high-return, low-debt, cash-generative businesses bought at a sensible price. Sources for the ideas: Berkshire Hathaway shareholder letters (owner earnings, return on equity, debt payoff, consistent earning power) and Buffett's 1987 and 1992 letters. This is a mechanical reading of those ideas, not a judgement of moat or management, and it is not Buffett's own process.

Score 0–100 = sum of points below. All inputs are SEC XBRL annual facts (frames CY####) and fresh balance-sheet instants, each shown with its filing and accession on the stock page. A test whose inputs are missing is `insufficient` and listed; it is never assumed. Financials (SIC 60, 61, 63, 64 and 67 (banks, credit, insurers, REITs and holding companies); SIC 62 (brokers, exchanges, asset managers) is scored, so GS, MS and SCHW carry scores and should be read with that in mind) are not scored.

| # | Test | Points | Scoring | Inputs |
|---|---|---|---|---|
| 1 | Average return on equity over the last 8 years, net income / equity at that fiscal year end (years with positive equity only; at least 5 required) | 25 | linear: 8% -> 0, 15% -> 25 | NetIncomeLoss, StockholdersEquity |
| 2 | Profitable every year (last 10; at least 7 required) | 15 | points x profitable years / years reported | NetIncomeLoss |
| 3 | Net income growth: 3-year average now vs the 3-year average at the start of the window (at least 6 years) | 10 | linear: 0% a year -> 0, 10% a year -> 10; not positive base -> 0 | NetIncomeLoss |
| 4 | Years to repay borrowings: total borrowings / 3-year average net income | 15 | linear: 4 years -> 15, 8 years -> 0; average earnings not positive -> 0 | borrowings as in Magic Formula (LongTermDebt, DebtCurrent, ShortTermBorrowings); unknown debt is insufficient, never zero |
| 5 | Operating margin, 5-year average (at least 4 years) | 10 | linear: 8% -> 0, 20% -> 10 | OperatingIncomeLoss / Revenues |
| 6 | Free cash flow / net income, 5 years cumulative; free cash flow = operating cash flow minus capital expenditure (at least 4 years) | 10 | linear: 0.5 -> 0, 1.0 -> 10 | NetCashProvidedByOperatingActivities, PaymentsToAcquirePropertyPlantAndEquipment |
| 7 | Owner-earnings yield: 3-year average free cash flow / market cap | 15 | linear: 3% -> 0, 7% -> 15 | as test 6; market cap = price x point-in-time SEC share count |

Limits: owner earnings here are free cash flow, so maintenance versus growth capex is not separated. The score says nothing about moat, management or industry. Thresholds are this site's reading of the letters, stated so they can be checked and changed.