“The primary test of managerial economic performance is the achievement of a high earnings rate on equity capital employed”

—  Warren Buffett

1979 Chairman&#x27;s Letter http://www.berkshirehathaway.com/letters/1979.html <br class="br">Letters to Shareholders (1957 - 2012) <br class="br">Context: The primary test of managerial economic performance is the achievement of a high earnings rate on equity capital employed (without undue leverage, accounting gimmickry, etc.) and not the achievement of consistent gains in earnings per share. In our view, many businesses would be better understood by their shareholder owners, as well as by the general public, if managements and financial analysts modified the primary emphasis they place upon earnings per share, and upon yearly changes in that figure.

Adopted from Wikiquote. Last update June 3, 2021. History

Help us to complete the source, original and additional information

Do you have more details about the quote "The primary test of managerial economic performance is the achievement of a high earnings rate on equity capital employ…" by Warren Buffett?
Warren Buffett photo
Warren Buffett146
American business magnate, investor, and philanthropist 1930

Related quotes

Benjamin Graham photo

“In most cases the favorable price performance will be accompanied by a well-defined improvement in the average earnings, in the dividend, and in the balance-sheet position. Thus in the long run the market test and the ordinary business test of a successful equity commitment tend to be largely identical.”

Benjamin Graham (1894–1976) American investor

Source: The Intelligent Investor: The Classic Text on Value Investing (1949), Chapter II, The Investor and Stock-Market Fluctuations, p. 25

Rensis Likert photo

“The preceding analysis shows that a manager who has high performance goals and excellent job organization but who relies solely on economic needs and direct pressure to motivate his men is very likely to be to be disappointed by their achievements. The noneconomic motives must be used fully, along with the economic needs, to create high performance goals and establish the level of motivational forces which yield high productivity. Since the principle of supportive relationships and group methods of supervision enable a manager to make effective use of the noneconomic motives, some valuable insights can be obtained by examining how these managerial principles appear to affect the motivations, satisfactions, and behavior of the members of an enterprise. A substantial body of research findings demonstrates that the greater the loyalty of the members of a group toward the group, the greater is the motivation among the members to achieve the goals of the group, and the greater is the probability that the group will achieve its goals.”

Rensis Likert (1903–1981) American statistician

Source: The Human Organization, 1967, p. 64: About "Building Peer-group Loyalty"

Rensis Likert photo

“Research reveal that managers achieving better performance (i. e., greater productivity, higher earnings, lower costs, etc. ) differ in leadership principles and practices from those achieving poorer performance.”

Rensis Likert (1903–1981) American statistician

Source: New patterns of management, (1961), p. 3

Warren Buffett photo

“When returns on capital are ordinary, an earn-more-by-putting-up-more record is no great managerial achievement. You can get the same result personally while operating from your rocking chair. Just quadruple the capital you commit to a savings account and you will quadruple your earnings. You would hardly expect hosannas for that particular accomplishment. Yet, retirement announcements regularly sing the praises of CEOs who have, say, quadrupled earnings of their widget company during their reign — with no one examining whether this gain was attributable simply to many years of retained earnings and the workings of compound interest.”

Warren Buffett (1930) American business magnate, investor, and philanthropist

1985 Chairman&#x27;s Letter http://www.berkshirehathaway.com/letters/1985.html <br class="br">Letters to Shareholders (1957 - 2012)

“The discounting presumably is to be done for each period of time at that rate of interest which represents the alternative cost of employing capital in the occupation in question; that is, at the rate which the entrepreneur could obtain in other investments”

Kenneth E. Boulding (1910–1993) British-American economist

Source: 1940s, The theory of the firm in the last ten Years, 1942, p. 793 cited in: Pedro Garcia Duarte (2010) &quot; A Path through the Wilderness: Time Discounting in Growth Models http://public.econ.duke.edu/~staff/wrkshop_papers/2009-2010_Papers/PGDuarte_Path_Through_Wilderness.pdf&quot;

“The finance conception of the modern corporation, which currently dominates, emphasizes control through the use of financial tools which measure performance according to profit rates. Product lines are evaluated on their short-run profitability and important management decisions are based on the potential profitability of each line. Firms are viewed as collections of assets earning differing rates of return, not as producers of given goods. The firm is not seen as being a member of only one industry. Consequently if the prospect of an industry in which it participates declines, the firm disinvests. The problem for management from this perspective is to maximize short-run rates of return by altering product mix, thereby increasing shareholder equity and keeping the stock price high”

Neil Fligstein (1951) American sociologist

Source: The transformation of corporate control, 1993, p. 15

George W. Bush photo

“Earn capital to spend capital.”

George W. Bush (1946) 43rd President of the United States

Presidential Leadership speech http://www.c-span.org/video/?326958-1/presidents-clinton-george-w-bush-leadership (9 July 2015) <br class="br">2010s, 2015

“The alarm must be sounded because it is the economic and social system of capitalism and imperialism that prevents the urgently needed full mobilization of the potential economic surplus and the attainment of rates of economic advancement that can be secured with its help.”

Paul A. Baran (1909–1964) American Marxist economist

Source: The Political Economy Of Growth (1957), Chapter Seven, Towards A Morphology Of Backwardness, II, p. 244

V. P. Singh photo

“I said bring equity back on the national agenda. And equity is a broad concept with facets like political equity, decentralisation, electoral reforms, freedom of the press. It includes economic and social equity: for women, for SCs and STs, for the minorities.”

V. P. Singh (1931–2008) Indian politician

We are ruled by an upper caste Hindu raj

“One of the primary tests of the mood of a society at any given time is whether its comfortable people tend to identify, psychologically, with the power and achievements of the very successful or with the needs and sufferings of the underprivileged.”

Richard Hofstadter (1916–1970) American historian

Source: The Age of Reform: from Bryan to F.D.R. (1955), Chapter VI, part II, p. 245

Related topics