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Walmart vs Costco: Which is the better investment?
By The Fifth Person  •  January 18, 2022
We often talk about buying great businesses. But what makes a business ‘great’? Profitability is one. And we measure profitability by return on capital. We look at efficiency by studying net income margins, free cash flow margins, cash conversion cycles among others. We examine capital intensity by looking at capital expenditures, equity, good will (normally acquisitions), debt, among other things. But further, how do we differentiate the great business from the average business? I argue that the difference is made in the reinvestment rate. A quote initially made by Buffett himself goes as such:
‘Leaving the question of price aside, the best business to own is one that over an extended period can employ large amounts of incremental capital at very high rates of return.’
So what exactly does it mean? To make it simpler to understand, we can simply translate that as — the best business to own is one that can (re)invest...
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By The Fifth Person
The Fifth Person® believes in spreading a message — that sound investment knowledge, financial literacy and intelligent money habits can help millions of people around the world achieve financial security, freedom and lead better lives for themselves, their family and their loved ones ...
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