Question

Q: Buffett looks for companies whose gross profit margins:

Select one:

a. Are the same as those of their competitors

b. Are greater than 20%

c. Are volatile

d. Are consistently 60% and above

Answer 1

Solution:-Option D is correct.

D.Are consistently 60% and above

Explaination:-Buffett looks for companies whose gross profit margins are consistently 60% and above.When analyzing income statements its important to drill down the quality of earnings of the firm and to figure out what the numbers really mean. You should start with the firm's gross profit margins. Companies with excellent long-term economics tend to have above-average margins.Greater than 40% = durable competitive advantage.Less than 40% = competition eroding margins.Less than 20% = no sustainable competitive advantage.