How Buffett Decides to Buy a Company
Buffett has listed in his yearly reports what it is that determines his thought processes when looking at buying a company. There's a lot of good ideas to learn from his way of thinking
1. Big purchases. This is probably the least helpful for the average business owner or manager because it directly connects ot Berkshire (BRK-A) or huge companies uniquely, because acquisitions need to be big enough to be relevant to the pre-tax earnings of a company. As a result, he doesn't purchase smaller companies that may fit into the rest of his criteria.
2. A history of consistent earnings. Now this is helpful. While it may sound obvious, consistent earnings actually requires that a business be run a certain way, with predictable earnings based upon real, durable competitive advantages. 
We need to build our businesses and divisions based upon that reality.
3. Great returns on equity. It's not enough to get fair returns, we need to make it one of our key goals to have above average returns. This drives us to creative and innovative thought processes to draw out ideas that meet this important requirement.
4. Little or no debt. Most companies still don't understand the importance of this. The less debt we have, the more room to move. It gives us more opportunities to try things and experiment without destroying the company. A heavily indebted company has very little room for error or experimentation as one big mistake could and has brought them down.
5. Existing Management. Contrary to the popular view going around today, as far as managers go, I believe we need to look for those that have no desire to bounce from job to job. We want to find those that live to work in the type of business we're in. Long-term, quality management is one of the major scarcities in the business world today.
6. Easy to Understand. We've talked about this alot in our talks about Buffett, but it's always worth repeating. If we don't understand the business we're in, how could we ever compete?
7. Asking Price. Berkshire won't get involved in unfriendly takeovers. But for us concerning "asking price," it tells us a lot. If we understand what our asking price would be for the company we run, we understand all the multifaceted parts of the business.
Other Buffett Resources:
Warren Buffett: The trouble with being a legend
Warren Buffett: 'I told you so'
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