I learned that one the slightly hard way. When I built my portfolio in 2022, I let a fat gross margin sway me more than it should have. Two of the retailers I bought scored almost identically on my 100-point Buffett screen: JB Hi-Fi 64, Harvey Norman 60, just four points apart.

Sixty and 64 might look like modest scores, and they are — neither is a “perfect” or “exceptional” business. But both are good, solid, and above all consistent, and predictable earnings are something Buffett prizes: a business you can forecast is a business you can value. Truly exceptional businesses going cheap don’t come along often — and for Australian and New Zealand investors the pool of listed companies is far smaller than in the US, so “good and steady at a fair price” is often the best buy actually on offer.

Then the results came in. Since 2022, JB Hi-Fi — the one with far thinner margins — has returned 75.8%. Harvey Norman, with more than double the gross margin, has returned 3.3%. One made me roughly 23 times more than the other.

Two near-identical scores; a 23-fold gap in outcome. The answer is the most useful lesson I can give you about reading a screen — and about what a moat actually is.

The scores

JB Hi-Fi (JBH) — 64/100 (”Possible”) | +75.8% since 2022

• Gross profit margin: 22% → 2/15

• Net earnings trend: rose 5 of 7 years → 7/10

• Operating expenses: 70% of gross profit → 1/5

• EPS trend: rose 6 of 7 years → 10/10

• Current assets vs total debt: 1.05× → 4/10

• Debt safety: → 15/15

• Return on equity: 32% → 15/15

• CapEx: low → 10/10

• Net profit margin: 4.7% → 0/10

Harvey Norman (HVN) — 60/100 (”Possible”) | +3.3% since 2022

• Gross profit margin: 55% → 15/15

• Net earnings trend: rose 4 of 7 years → 3/10

• Operating expenses: 64% of gross profit → 1/5

• EPS trend: rose 4 of 7 years → 3/10

• Current assets vs total debt: 1.18× → 4/10

• Debt safety: → 15/15

• Return on equity: 14% → 5/15

• CapEx: → 10/10

• Net profit margin: 14% → 4/10

Look at the totals and they’re twins. Look at the rows and they’re opposites.

The mirror image

Harvey Norman wins one metric enormously: gross margin. At 55%, it keeps 55 cents of every sales dollar — full marks. JB Hi-Fi keeps just 22 cents — almost nothing on the screen’s scale. On the face of it, Harvey Norman looks like the one with pricing power.

But look at the row that actually predicts whether a business builds wealth — return on equity. JB Hi-Fi earns 32% on shareholders’ equity. Harvey Norman earns 14% — less than half.

That’s the whole story in two numbers. Harvey Norman has the fatter margins; JB Hi-Fi has the better business.

A fat margin isn’t a moat — it’s a symptom

This is the bit worth slowing down for, because it’s where most people (me included, once) go wrong.

A high gross margin is not a moat in itself. It’s often a symptom of one — but not always, and that distinction is everything. A genuine economic moat comes from one of about five places:

• Intangible assets — a brand, patent or licence customers will pay up for

• Switching costs — it’s a hassle or a risk for customers to leave

• Network effects — the product gets more useful as more people use it

• Cost advantages — you can produce or sell cheaper than anyone else

• Efficient scale — you serve a market that’s only really big enough for one or two players

When a fat margin is the symptom of one of those — a beloved brand, say — it’s a wonderful sign. But Harvey Norman’s 55% isn’t really that. It’s largely a product of its structure: a franchise model and a big property portfolio. That property ties up an enormous amount of shareholders’ capital earning only a modest return — which is exactly why the fat margin never shows up as a fat return on equity.

Costco, from the top of this piece, is the proof of the flip side. Its moat was never in the margin — it’s a cost advantage and efficient scale: buy in colossal volume, sell on wafer-thin markups, lock customers in with membership. The thin margin isn’t a weakness; it’s the whole strategy. JB Hi-Fi is a smaller cousin of the same idea: thin margins, a low-cost, high-turnover model, a genuine cost advantage in its niche. Low margin, real moat.

Why the screen couldn’t tell them apart

The screen hands 30 of its 100 points to margin-related metrics — and margins are the one thing Harvey Norman is genuinely good at. So it scored almost level with JB Hi-Fi, even though the engine underneath was far weaker. The total couldn’t separate them.

A human reading the rows could, in about five seconds. One glance at the ROE gap — 32% versus 14% — tells you which business turns a dollar of capital into wealth and which mostly just sits on it. The screen narrows the field; it doesn’t make the judgement. That part is still yours.

The mistake I actually made: opportunity cost

Here’s the part I’d do differently. Harvey Norman wasn’t a disaster — it went up 3.3%. I didn’t lose money. But that’s the wrong way to keep score.

Charlie Munger banged on about opportunity cost his whole life: the true cost of any decision isn’t zero, it’s whatever your next best option would have done instead. Every dollar I put into Harvey Norman was a dollar I didn’t put into JB Hi-Fi — and JB Hi-Fi’s dollar worked more than twice as hard. Measured against zero, Harvey Norman was fine. Measured against the alternative sitting right beside it on my own screen, it cost me dearly.

And the clue was there the whole time, in the ROE row. I had the number; I just didn’t weight it heavily enough. The same went for the consistency I’d bought them both for: JB Hi-Fi grew earnings per share in 6 of the last 7 years; Harvey Norman managed 4, its profit lurching from $841 million in 2021 to $352 million in 2024. One was a metronome, the other a rollercoaster — and I’d told myself they were both metronomes.

What this means for you

Don’t buy the total score. Read the rows.

A screen is brilliant for narrowing hundreds of companies down to a handful worth studying. But two can reach the same number for opposite reasons, and the reasons are where the investment case lives. So:

• Treat a fat gross margin as a clue, not a verdict — then ask which of the five moat sources, if any, is actually producing it

• Read return on equity early, and weight it heavily — sustained high ROE without much debt is the truest single sign of a durable advantage

• Judge every buy against your next best option, not against zero

JB Hi-Fi and Harvey Norman both scored “possible.” Only one had the engine of a genuinely good business underneath it — and the row that gave it away was sitting in plain sight the whole time.

Next time: how I actually put a price on a business once it’s passed the quality test — because, as Apple showed, a wonderful business at the wrong price is still a poor investment.

This is not financial advice. Returns shown are from September 2022 to June 2026 and relate to my own portfolio. Past performance does not guarantee future results. The information in this newsletter is educational and based on publicly available data. It does not take into account your personal financial situation, goals, or risk tolerance. Always do your own research or consult a licensed financial adviser before making investment decisions.

It scored 83 out of 100.

That’s “high quality” (70–84 on my scale), just short of “exceptional” (85+). It puts Apple among the best businesses I’ve screened — only a handful of the roughly thirty companies I’ve run have scored this high. And Apple should be higher.

Eighty-three is not 100. And the two places Apple lost points are the most interesting part of the whole exercise. On the scoreboard they look like flaws but on a closer look neither really is — and one of them is really a strength. That gap, between what the screen flags and what’s actually going on, is exactly why a screen still needs a human if you want to find the best companies.

Great! So, am I buying as much Apple as I can?

In a word, No!

I love the company. It truly is exceptional. But, even great companies aren’t worth an infinite amount.

And, for Australian or New Zealand investors looking to the US, the pricing question has a second layer an American never has to think about. More on that below.

The score: 83 out of 100

Here’s the full breakdown, metric by metric, with the points scored against the maximum:

• Gross profit margin — 15/15. Apple’s gross margin is around 43%. It keeps 43 cents of every revenue dollar before operating costs. The iPhone premium, the App Store take, the AirPods markup — in a single number.

• Net earnings trend — 3/10. Apple’s net income rose in only four of the last seven years — small dips in 2019, 2023 and 2024 — so the screen, which rewards a steady year-on-year climb, marks it down. Worth a flag, but milder than 3/10 makes it sound. More on that below.

• Operating expenses — 5/5. Overheads are low relative to gross profit. The brand does the marketing for them.

• EPS trend — 10/10. Earnings per share have climbed almost every year — helped enormously by relentless share buybacks, which shrink the share count even when total profit wobbles.

• Current assets vs total debt — 0/10. The lowest score on the board — but, as we’ll see, the one I’d take with a pinch of salt. Apple’s current assets cover only about 60% of its total debt. On a conservative balance-sheet test that’s an outright fail — but it’s entirely deliberate, and arguably a smart move rather than a weak one. Hold that thought.

• Debt safety — 15/15. Despite that, Apple’s earnings are so vast it could clear all its long-term debt in just over a year if it chose to.

• Return on equity — 15/15. Extraordinary — well over 100%, because years of buybacks have shrunk the equity base so far that the profit dwarfs it.

• CapEx — 10/10. Capital-light. Selling another App Store subscription costs Apple almost nothing.

• Net profit margin — 10/10. Around 24% of every revenue dollar becomes profit after all costs and tax.

Score: 83/100 — high quality, and right at the top of the band. One genuine weakness (the lumpy earnings) and one deliberate quirk (the tight balance sheet) — and as you’ll see in a moment, that second one is arguably not a weakness at all.

First, those “lumpy” earnings

The screen is right that Apple’s net profit hasn’t risen every single year. But look closer and it’s hardly alarming. The dips are shallow — the worst, in 2019, was about 7%; the 2023 and 2024 dips were under 4% each. Revenue and gross profit have climbed far more smoothly, and the overall trend is firmly up: net profit has roughly doubled over the period.

So what caused the wobbles? Mostly deliberate reinvestment — operating expenses, R&D especially, have risen every single year as Apple builds for the future. Layer on the COVID demand surge and its hangover, and a one-off tax charge in 2024 (most of that year’s dip came from below the line, not the business — which is why 2025 snapped straight back to a record), and the “lumpiness” looks less like a weakness and more like a healthy company spending on its future while absorbing a few one-offs.

The screen can’t see any of that. It just counts the up years. That’s not a criticism of the screen — flagging it is exactly its job — but a 3/10 here is a prompt to investigate, not a verdict.

Is that 0/10 really a weakness?

I don’t think it is — and Mary Buffett, whose book Warren Buffett and the Interpretation of Financial Statements is where this whole screen comes from, makes exactly this point.

She notes that Coca-Cola, one of the great durable-advantage businesses, has often run a current ratio at or below 1 — its short-term obligations exceed the assets it could quickly turn into cash. For an ordinary company, that’s a warning sign. For a business with enormous, reliable earning power and easy access to cheap credit, it isn’t: it can cover those obligations out of next quarter’s profits without breaking stride.

With Apple it goes a step further — the tight balance sheet isn’t an accident, it’s a deliberate and rather clever piece of management. Apple generates so much cash that sitting on a big pile of idle current assets would simply be wasteful. So instead it hands cash back to shareholders through buybacks and funds part of itself with cheap borrowing. For a business this profitable, carrying low working capital and a bit of debt is efficient — it works for shareholders, not against them. The only reason it’s safe is the reliable earnings underneath it; for a weaker company, the same balance sheet would be reckless.

You can see that safety sitting right there in Apple’s own scores: 0/10 on liquidity, directly beside 15/15 on debt safety — it could repay all its long-term debt in just over a year. Those two readings aren’t a contradiction. Together they’re the whole picture: a company that chooses to run lean because it can.

So is Apple really only “high quality”? On the mechanical score, yes — 83 sits right at the top of the band, just shy of exceptional. But neither thing holding it back is the red flag the raw number suggests: the earnings wobble is mild and largely down to good reinvestment, and the tight balance sheet is a deliberate strength dressed up as a weakness. Weigh both properly and Apple looks every bit an exceptional business.

As Mary Buffett puts it, these checks are prompts to think, not to give you a definitive yes or no answer. The screen flags. The brain decides. You need both.

Which leaves just one thing standing between Apple and a buy: the price.

The time I baulked — and bought anyway

In July 2022, I was putting together my Sharesies portfolio. Apple had scored well. But the stock was trading at roughly 20 times earnings. That gave me pause.

The framework suggests buying at or below fair value — and at 20x earnings, Apple wasn’t cheap. My conservative intrinsic value calculation put the fair value significantly lower.

But then I did something I recommend to anyone doing serious research into US stocks: I checked what Berkshire Hathaway was doing. Berkshire files quarterly 13F statements with the US Securities and Exchange Commission — public documents that show exactly what they hold and whether they’re buying or selling. In their 2022 filings, Berkshire was still adding to its Apple position.

Warren Buffett — the man who built the framework I was using — was still buying at 20x earnings.

That was enough for me. I bought.

Apple is now one of my better-performing positions. At the time of writing, it’s trading at close to 40 times earnings.

Why I’m not buying more

I said at the top I’m not adding to my Apple. Here’s the full reason — and it’s the same one Charlie Munger gave about Costco.

Munger loved Costco — admired the culture, the management, the business model. But when the stock reached 40 times earnings:

“The trouble with Costco is it’s 40x earnings. But except for that, it’s a perfect damn company.”

He owned it, would never sell it, praised its future — but wouldn’t buy more at that price.

Apple at 40x earnings is my Costco.

The business is as strong as ever — the 83/100 score hasn’t changed. But the price has changed dramatically, and price is what determines your future return.

To justify 40 times earnings, you need to believe Apple will grow earnings at roughly 15–20% per year for the next decade. Not impossible. But it’s an aggressive assumption built into the price you’re paying today — and remember, this is a business whose earnings have actually fallen in three of the last seven years. The framework is deliberately conservative, and at 40x earnings, there’s almost no margin of safety left.

And for us, there’s a second price tag

Here’s something an American investor never has to think about, but every Australian and New Zealand investor does: the exchange rate.

When you buy a US stock, you’re making two bets at once — one on the company, and one on the currency. You pay in US dollars, so the price you *actually* pay depends on what your Kiwi (or Aussie) dollar is worth on the day.

I have a simple rule for US stocks: I only buy when the New Zealand dollar is at its 10-year average against the US dollar, or stronger. The logic is the same discipline as the Buffett framework itself — don’t overpay. A weak local currency is just another way of overpaying, even when the stock’s US-dollar price looks fair.

In July 2022, when I bought Apple, the NZD was sitting around 0.63 — right about its 10-year average at the time. The currency wasn’t working against me, so the only question was the stock itself.

Today, the New Zealand dollar buys about 0.58 US dollars — roughly 11% below its 10-year average of around 0.65 (Reserve Bank of New Zealand figures, June 2026). So for a Kiwi investor, Apple isn’t just twice as expensive on earnings — it’s a further ~8% more expensive again, purely because of the currency.

The double whammy for a New Zealander buying Apple today: roughly twice the earnings multiple of 2022, and a dollar worth about 8% less to pay for it.

And here’s the part the big US newsletters never mention, because it never occurs to them to: it’s not the same story across the Tasman. As of June 2026 the Australian dollar is sitting almost exactly on its own 10-year average against the US dollar. So an Australian investor buying Apple today faces the valuation problem — but not the currency one. Same stock, same day, genuinely different decision depending on which side of the Tasman you’re on.

There’s a flip side worth noting. A weak Kiwi dollar is bad for buying US stocks, but good for selling them. If I ever convert my Apple gains back to New Zealand dollars, the weak currency works in my favour — I’d get more NZD back than I would have at 0.65. (More on exchange rates and US investing in a future post — it deserves one of its own.)

The thing to understand about quality and price

The Buffett screen answers one question: is this a great business? Apple, at 83/100, is a high-quality business — though not a flawless one.

The intrinsic value calculation answers a different question: am I being asked to pay a fair price for it? And for those of us outside the US, there’s a third: what is my own currency worth today?

At 20x earnings in 2022, with the NZD near its average: uncomfortable, but Berkshire was still buying — so possibly yes.

At 40x earnings today, with the NZD well below its average: no — at least not under conservative assumptions, and not for a New Zealander.

This is the central tension in long-term investing. The best businesses almost never trade cheaply. The market knows they’re excellent and prices them accordingly. The skill is in waiting — for a correction, a bad earnings quarter, a sector rotation, or even a favourable swing in the currency — and being ready to buy when the great business briefly becomes available at a fair price.

I’m not selling my Apple. But I’m not buying more either.

Until the price makes sense again — the earnings multiple, the fair value range, and the exchange rate — it stays on the watchlist. Set an alert. Wait.

All fair value calculations use: EPS growth capped at 8%, future P/E of 15, required return 10%, 10-year forecast. Company data from Financial Modeling Prep and SEC EDGAR 13F filings. Exchange rate data from the Reserve Bank of New Zealand and Reserve Bank of Australia, June 2026. This is not financial advice. The information in this newsletter is educational and based on publicly available data. It does not take into account your personal financial situation, goals, or risk tolerance. Always do your own research or consult a licensed financial adviser before making investment decisions.

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Get the free screener

The screener is the actual spreadsheet I use to run the nine-metric Buffett screen. It's free — subscribe (free, no payment) and it arrives in your welcome email straight away.

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Paste any company's financials from MSN Money and it scores all nine Buffett metrics automatically, plus a basic fair value calculation.

Note: I use MSN Money as it gives 8 years of financial history. Most others only give 4 or 5 years.

Tip: the file opens in Google Sheets, but it works best downloaded to Excel — File → Download → Microsoft Excel.

How to use it — the 5-minute method

• Read the first post — it explains each of the nine questions and why they matter: The Nine-Question Stock Screen

• Find the company on MSN Money — search the ticker (e.g. “JBH”) and go to Financials.

• Copy the three statements into a blank Excel sheet — Income Statement first, then Balance Sheet below it, then Cash Flow below that

• Delete the rows you don’t need — what’s left is the data for the nine metrics, in the same order as the screener

• Paste straight into the screener’s yellow data rows — exactly as MSN shows it. Values like 23.77B and 988.92M convert automatically (even mixed in the same row), and negative Capital Expenditures are fine too

• Read the score — 85+ is exceptional, 70–84 high quality, 55–69 possible, under 55 probably not a durable-advantage business

A note on what the score means

The screen answers one question: is this a great business? It does not tell you whether the price is fair — that’s the second half of the framework, and the spreadsheet’s valuation section gives you a starting point. Fair value is a range, not a number; what you’re prepared to pay depends on your own assumptions and risk tolerance.

This is not financial advice. The information in this newsletter is educational and based on publicly available data. It does not take into account your personal financial situation, goals, or risk tolerance. Always do your own research or consult a licensed financial adviser before making investment decisions.

”Warren, your investment strategy is so simple and obvious. Why doesn’t everyone just copy it?”

Buffett smiled.

”Because nobody wants to get rich slowly.”

Most people want to get rich quickly. Many spend significant time and money trying. And most don’t succeed. Here’s the thing that doesn’t get said enough: getting rich quickly rarely works out. Getting rich slowly is almost guaranteed — if you own the right businesses and are patient enough to let compounding do its work.

There’s a bestselling book called The Millionaire Fastlane by M.J. DeMarco that takes the opposite view. The author argues — not entirely without merit — that the traditional slow-lane approach (save diligently, invest in index funds, wait 40 years) is a wealth formula that robs you of your best years. By the time you’re “rich,” you’re too old to enjoy it.

He has a point — if you start at 20 and wait 40 years, you'll be 60 before the payoff arrives. As someone approaching 50, though, I'd push back. I didn't save in my youth because people told me to enjoy life while I was young — which I did, and still do. I've seen plenty of sprightly 60, 70, and 80-year-olds who haven't seemed to have lost any enthusiasm for life. If I'd started the Get Rich Slow approach in my twenties I'd have a lot more money behind me now — money that I'd still enjoy just as much as when I was twenty, only now I could share it with my wife and kids.

He has a point about passive index investing. But this newsletter isn’t about passive investing or 40-year timelines. It’s about identifying genuinely exceptional businesses — the ones with durable competitive advantages — and buying them at fair prices. Done well, this approach can deliver meaningfully better returns than an index fund, and it doesn’t require 40 years. I know because I’ve been doing it.

The spreadsheet I built to run this screen is free for all subscribers. Subscribe below to download it.

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How I started

In September 2022, I had about $22,000 sitting in the self-invest portion of my superannuation account. The minimum trade size was $2,000, which meant I could hold a maximum of seven stocks.

The big question was: what to buy?

Warren Buffett talks about a “punch card” approach to investing. Imagine you have a card with 20 slots — that’s all the investments you’re allowed to make in your entire lifetime. The constraint forces you to be ruthlessly selective. You don’t fire off your slots on hunches or tips. You wait for the ones you’re genuinely confident in.

I had seven slots. I didn’t want to waste a single one.

I’d just finished reading Warren Buffett and the Interpretation of Financial Statements by Mary Buffett and David Clark. In it, they walk through more than 50 financial signals Warren Buffett uses when evaluating a company. I sat down and asked: which of these can I actually find on a free website?

The answer was nine. Nine metrics consistently available on financial sites — and together they painted a clear picture of whether a business had a durable competitive advantage. I built a simple spreadsheet — free to download (see below). I ran it across a list of ASX companies using eight years of data from MSN Money. (Most sites only give you three or four years of history. Eight matters, because consistency over time is the whole point.)

The screen turned up more than fourteen companies that passed most of the tests. I then used price as my guide, looking for companies trading at or below fair value. I bought seven.

No complex modelling. No insider information. No trading in and out. Just: find good businesses, pay a fair price, and hold.

Here’s where those seven picks are today, roughly three and a half years later:

• Rio Tinto (RIO) +93.9%

• JB Hi-Fi (JBH) +75.8%

• Brambles (BXB) +46.8%

• The Lottery Corporation (TLC) +16.3%

• Car Group (CAR) +14.7%

• Harvey Norman (HVN) +3.3%

• Super Retail Group (SUL) -1.8%

• Portfolio total (Sep 2022 – Jun 2026) +33.4%

Separately, through Sharesies, I hold smaller positions in Apple (+126.7%), Fisher & Paykel Healthcare (+66.1%), Hallenstein Glasson (+105.3%), Shaver Shop (+40.6%) and Briscoe Group (+16.6%) — all found using the same screen.

Not every pick was perfect. Two in the super portfolio are essentially flat. But the overall result is what the method promises: own good businesses long enough, and the compounding does the work.

I started this newsletter for two reasons. First, to save myself some effort — when friends and family ask about investing, I can point them here and to the spreadsheet instead of having to email people individually. Second, to consolidate my own notes, analysis, and results in one place.

The framework

To paraphrase Warren Buffett: buy wonderful businesses at fair prices, and hold them forever.

The two key ideas are ‘wonderful business’ and ‘fair price.’

Finding a wonderful business is actually the easier part. It’s largely objective — a business either has consistently high margins or it doesn’t. Earnings either trend upward or they don’t. Return on equity is either strong or it isn’t. My spreadsheet does this work systematically. I’ll share it with you in a future post.

Deciding on a fair price is the harder part. Charlie Munger put it well when discussing Costco — a business he loved and held for decades:

”I’ve always believed that nothing was worth an infinite price. Even an admirable place like Costco could get to a price where you would say that’s too high.”

He called it “a perfect damn company” — praised its culture, its future — but said that at 40 times earnings, he wouldn’t buy more shares.

That’s the discipline. A wonderful business is not a blank cheque for any price.

The nine questions below test the ‘wonderful business’ side of the equation. How to price it is the subject of the next post.

1. Is the gross profit margin above 40%?

Gross profit margin is the percentage of each sale a company keeps after paying the direct cost of making or delivering its product. A software company might keep 80 cents of every dollar. A steel mill might keep 15 cents.

Companies with consistently high gross margins tend to have pricing power. They’re selling something customers want badly enough to pay a premium for. That’s the foundation of a moat.

Threshold: above 40% = excellent. Below 30% = warning sign.

2. Are net earnings consistently growing?

Not just whether earnings are higher this year than last year — but whether they’ve been growing consistently over time. We look for earnings to be up in at least 60% of years over the period examined.

A company that earns $1 one year, $3 the next, $0.50 the year after that is not a compounding machine. It’s a lottery ticket. Buffett wants businesses where the earnings line goes from bottom-left to top-right, year after year.

3. Are net earnings at least 10% of gross profit?

This checks whether the company is actually keeping a meaningful slice of revenue as profit after paying all expenses — not just cost of goods, but staff, rent, marketing, administration, everything.

A business that generates $1 billion in gross profit but only $50 million in net earnings is spending 95% of its gross profit just keeping the lights on. That’s a fragile business.

4. Is SG&A overhead below 30% of gross profit?

Selling, general and administrative expenses — the cost of running the corporate machine — should be low relative to gross profit. Businesses with durable advantages don’t need to spend a fortune on marketing or administration to maintain their position.

Coca-Cola doesn’t need to convince you that Coke exists. McDonald’s doesn’t need to explain what a Big Mac is. That low overhead burden is worth more than it looks.

5. Is EPS trending upward?

Similar to the earnings growth check, but specifically for earnings per share — which adjusts for share dilution. A company that grows total earnings by issuing millions of new shares every year isn’t actually rewarding long-term shareholders. We want to see EPS rising in at least 60% of years.

6. Do current assets exceed total debt?

A simple balance sheet check. Can the company cover its total debt with the liquid assets it currently holds? A company that fails this test depends on continued access to credit markets to function. That’s a source of fragility.

7. Could the company repay its long-term debt within 4 years of net earnings?

Even if debt is manageable today, we want to know how many years of earnings it would take to retire it. Under 3 years is excellent. Over 5 years is a warning sign. This measures how much of the company’s future earnings are already spoken for.

8. Is return on equity consistently above 20%?

ROE measures how much profit the company generates for each dollar of shareholders’ equity. A business with 25% ROE is a compounding machine — it turns retained earnings into future earnings at a high rate.

This is perhaps the single most important metric. The businesses that make long-term investors wealthy are those that can reinvest profits at high rates of return, year after year.

9. Is capital expenditure below 50% of net earnings?

High capex businesses — airlines, car manufacturers, mining companies, utilities — must constantly reinvest enormous sums just to maintain their competitive position. That leaves less cash for dividends, buybacks, and growth.

The businesses Buffett loves can grow without spending much capital. A software company adding a million new users doesn’t need to build a new factory. That capital-light model is a compounding superpower.

How the scoring works

Rather than a blunt pass or fail, each of the nine questions scores points — a company that *almost* clears a threshold still earns something, which gives a more honest picture than yes/no ever could. The points add up to a score out of 100:

• **85–100** — exceptional

• **70–84** — high quality

• **55–69** — possible, but not obviously exceptional

• **Under 55** — probably not a durable-advantage business

Scoring the quality is only half the job. The second step is calculating intrinsic value and applying a margin of safety — only buying at a meaningful discount to what the business is actually worth.

Download the free screener

Next post: I run Apple through all nine questions. The score is high. Whether the price is right — at 20x earnings, at 40x earnings — turns out to be a far more interesting conversation than I expected.

This framework is based on the work of Mary Buffett and David Clark. It is a tool for organising financial information — not a guarantee of investment returns. Past results from my own portfolio do not guarantee future performance. This is not financial advice. The information in this newsletter is educational and based on publicly available data. It does not take into account your personal financial situation, goals, or risk tolerance. Always do your own research or consult a licensed financial adviser before making investment decisions.