Warren Buffett is known for his smart business practices and tough negotiating tactics. His company, Berkshire Hathaway Inc., is one of the largest conglomerates and investment companies in the world. Over the years, the company has acquired dozens of companies with over 75 wholly owned or controlled subsidiaries. It owns billions of dollars worth of shares in companies like Apple Inc., Amazon.com Inc., Mastercard Inc. and other.
Buffett has amassed his incredible portfolio and his company’s nearly $1 trillion value through decades of smart investments, smart acquisitions, and business acumen. A longtime Nebraska resident, Buffett earned his bachelor’s degree in business administration from the University of Nebraska-Lincoln in 1950. Almost six decades later, he returned to the university to give a speech to the graduating class and talk about some of the most valuable things he learned at a young age that helped him get to where he is Today is.
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Buffett said that there is nothing more important to understand than accounting.
“People ask me what they should take in business school,” Buffett said. “You have to understand accounting. It depends on the language. It’s like being in a foreign country without knowing the language if you’re in business and don’t understand accounting.”
Not only is this a valuable tool for understanding the business world, Buffet says it has also made him “a lot of money.”
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Accounting is not an abstract principle used only in textbooks. Buffett tells how he used accounting to acquire popular home building company Clayton Homes in early 2003.
Most acquisitions require extensive due diligence, meetings, negotiations and other processes before an acquisition can take place. While much of this was probably still happening, Buffett provided a unique, billion-dollar example of how he used accounting to acquire the company.
“We agreed on $1.7 billion. “I closed the deal over the phone without ever meeting the people there,” Buffett said. “But I had seen enough from reading 10-Ks, 10-Qs and annual reports.”
Buffett admits that he used his accounting skills and an acquisition target’s disclosures to the Securities and Exchange Commission to analyze the company and learn more about its quality based on the decisions disclosed in its filings.
While there was likely a lot of due diligence and meetings following these phone calls, accounting allowed Buffett to make a multi-billion dollar decision to buy a company with minimal lead time and still be confident that he was getting a good deal with his acquisition might.
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This article Warren Buffett Paid $1.7 Billion for a Company Without Ever Meeting Its Founders Using the ‘Most Important Thing’ in Business originally appeared on Benzinga.com
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