How scores work

Each scorecard uses the company's annual reports (Form 10-K) as filed in XBRL to the SEC, read through the EDGAR companyfacts API. We take the last 10 fiscal years (at least 5). When a later 10-K restates a year, the restated figure is used. Companies that file under IFRS (most foreign issuers) or have no 10-K data can't be scored.

Return on equity

Net income / shareholders' equity at year end, each year; passes if the average is at least 15%. Negative equity fails.

Debt to equity

Long-term debt including the current portion, plus short-term borrowings and commercial paper, over shareholders' equity in the latest year; passes at 0.5 or below.

Gross margin

Gross profit (or revenue minus cost of revenue) / revenue, averaged; passes at 40% or above. Banks, insurers and many REITs don't report cost of revenue, so they get a dash.

Consistent earnings

Diluted EPS positive in every year, and higher in the latest year than the first. EPS is split-adjusted by chaining each year-over-year change from a single 10-K that reports both years.

Free cash flow

Cash from operations minus purchases of property and equipment; passes if positive every year.

Share buybacks

Weighted-average diluted shares in the latest year below the first year, split-adjusted the same way as EPS.

Interest coverage

Operating income / interest expense in the latest year; passes at 5x or more, or with no debt and no interest.

Price vs owner-earnings value

Owner earnings, as Buffett defined them in his 1986 letter: net income plus depreciation and amortization minus capital spending (all capital spending is treated as maintenance, the conservative reading). The last 3 years' average is grown for 10 years at the company's split-adjusted EPS growth rate, held between 0% and 10%, then at 3% a year forever, and discounted at 10%. The discount rate, cap and terminal rate are our stated assumptions, not data. Divided by diluted shares, that value is compared with the delayed last price from Yahoo Finance; passes if the price is at or below it.

Score

The number of tests passed, out of 8. A test with no data counts as not passed. The score is an educational checklist, not a forecast, a price target or a recommendation; Berkshire Hathaway's actual purchases are not predicted or implied.