In another thread a member of this forum very kindly posted a link to a page where letters from Warren BUffett to shareholders of Berkshire can be found.
I am reading through these because a couple of members on this forum advised that it is a good place to learn investing.
I just started to read the letter from 1980 and the very first paragraph has left me with a few questions that I am hoping you would be able to share with me.
Here is that first paragraph:
Operating earnings improved to $41.9 million in 1980 from
$36.0 million in 1979, but return on beginning equity capital
(with securities valued at cost) fell to 17.8% from 18.6%. We
believe the latter yardstick to be the most appropriate measure
of single-year managerial economic performance. Informed use of
that yardstick, however, requires an understanding of many
factors, including accounting policies, historical carrying
values of assets, financial leverage, and industry conditions.
My question is which latter yardstick ratio is Warren Buffett talking about and what is the calculation to work it out?
What are historical carrying values of assets and financial leverage? I've tried reading about financial leverage so I have an idea of what it is but it would be very helpful to me if you could share you're understanding of it with me.