Generally Accepted Accounting Principles (GAAP)
When an investor looks at financial statements, there are a few questions that he wants to know:
(1) Approximately how much is this company worth?
(2) What is the likelihood that it can meet its future obligations?
(3) How good a job are its managers doing, given the hand they have been dealt?
In most cases, answers to one or more of these questions are difficult from the minimum GAAP presentation.
Further complicating the problem is the fact that many managements view GAAP not as a standard to be met, but as an obstacle to overcome.
Then there are managers who actively use GAAP to deceive and defraud.
I just read a book on “understanding financial statements for managers” the other day and indeed it is easy to “cook” the books as a lot of accounting is subjected to the interpretation of the accountant.
If the information presented is insufficient, it then falls on the investor to ask the management to provide data (whether GAAP, non-GAAP or extra-GAAP) that helps us to answer the three questions above.
Update on major non-insurance business operations
There follows the usual summary of the major non-insurance business operations. These included Nebraska Furniture Mart, The Buffalo News, See’s Candies, Fechheimer, World Book, Kirby, The Scott Fetzer Manufacturing Group and Borsheim’s.
A very interesting fact was that when Warren purchased Borsheim’s, they had no audited financial statement and he didn’t take inventory, verify receivables or audit the operation in any way.
A lot of it was based on trust in the Friedman family, who were siblings of Mrs Blumkins (founder of Nebraska Furniture).
And the Friedman family brings to the jewelry business precisely the same approach that the Blumkins bring to the furniture business. The cornerstone for both enterprises is Mrs. B’s creed: “Sell cheap and tell the truth.” Other fundamentals at both businesses are:
(1) Single store operations featuring huge inventories that provide customers with an enormous selection across all price ranges.
(2) Daily attention to detail by top management.
(3) Rapid turnover.
(4) Shrewd buying.
(5) Incredibly low expenses.
The combination of the last three factors lets both stores offer everyday prices that no one in the country comes close to matching.
And Warren’s major contribution? Leave them alone and let them do their job.