What Is a Business Worth? The Shrewd Ten-Year Answer

Wall Street answers this question with a forty-tab spreadsheet and a priesthood to run it. Shrewd investors answer it in one sentence: a business is worth what it will be worth in ten years — dividends added back in — compared with the price on the screen today. This guide teaches you to use that sentence.

Everything else here — moats, book values, multiples — is in service of that single yardstick. It is the method, along with close variations, practised not just by many Shrewd investors, but often so casually cited by Buffett himself as to seem deeply embodied. In the Buffett spirit of teaching what actually worked, it is passed on here in full, for nothing.

One signpost before we begin: this guide teaches one skill — valuing a business. If you are earlier in the journey than that — wanting the whole picture, from the quiet miracle of compounding to opening your first account and buying your first share — start instead with our complete guide, Investing Basics: How to Become Shrewd, and return here when a company first makes you wonder what it is truly worth. This page will be waiting.

Why ten years

Because ten years is the distance at which the noise dies. Next quarter's earnings are a coin toss dressed in commentary; the market’s mood this month is, in Benjamin Graham’s old image, a voting machine — but over years it becomes a weighing machine, and weight is what you are trying to judge. Ask what a business will be worth in 2036 and you are forced to stop thinking like a ticker-watcher and start thinking like what a shareholder actually is: a part-owner of tills, factories, brands and habits. Most of the market cannot hold a thought for ten months. Holding one for ten years is, all by itself, an edge.

The engine: earnings that endure

What carries a business across those ten years is its earnings — and a dollar of earnings can only ever go to two places. It is reinvested inside the company, compounding the operations that produce the next decade’s earnings, or it is paid out to you as a dividend, cash in hand that our yardstick carefully adds back. Both roads lead into the ten-year value; nothing else does. Which is why the whole craft of valuation reduces to one question, asked honestly: are these earnings durable? A company earning a fortune today whose earnings evaporate by year six is worth far less than its income statement suggests — and a modest earner that will still be earning, growing, and paying in 2036 is worth far more.

The Shrewd insight: price is what the voting machine says this afternoon. Value is what the weighing machine will say in ten years — and the entire method is refusing to confuse the two.

Durability, though, is not a hope; it has a cause, a name, and visible evidence — Buffett’s favourite word in all of business. The next page is about moats: what they are, the forms they take in companies you deal with every week, and how to read a company’s accounts once you know which kind of business you are holding.