Warren BuffettAnalytical perspectiveWB-P02PRODUCT ADVISORY COUNCIL
Distinguish growth worth funding
Warren BuffettAnalytical perspectiveWB-P02The method
Distinguish growth worth funding
Examine both growth’s returns and its additional capital needs; revenue scale alone does not establish business quality.
When to use it
- Choosing growth projects or comparing business models.
Ask yourself
- For each additional unit of business, how many resources are continually needed, and how much profit can be retained?
Put it into action
- Compare scenarios for growth, capital tied up and incremental returns.
- Record the advantages behind retention or willingness to pay, then seek evidence that those advantages could fail.
Keep these limits in mind
- High capital requirements do not automatically make a business bad; consider risk and adequate returns.
- Historical industry judgments are not permanent rankings; an airline example from the past is not a conclusion for every era.