Berkshire requires a 25–50% discount to intrinsic value before buying.
Buffett Quality Checklist
✗ROE >15% consistently (≥7 of last 10 years)
✓Free cash flow positive (≥8 of last 10 years)
✓Conservative leverage — Debt/Equity below 1
✓Revenue growing at CAGR >5%
✓EPS growing at CAGR >5%
10-Year Financial History — SEC EDGAR 10-K Filings
Year▲
Revenue▲
Net Income▲
FCF▲
Owner Earnings▲
ROE▲
Net Margin▲
LT Debt▲
Cash▲
2016
$2.4B
$266.8M
—
$406.9M
8.4%
11.0%
$0
$976.6M
2017
$2.7B
$136.6M
$562.2M
$255.7M
4.2%
5.0%
$134.1M
$1.0B
2018
$3.1B
$432.5M
$325.4M
$542.7M
12.4%
13.9%
$125.5M
$723.1M
2019
$3.4B
$532.4M
$602.4M
$535.9M
13.0%
15.8%
$120.1M
$728.6M
2020
$3.7B
$664.3M
$836.6M
$719.6M
13.5%
18.0%
$100.8M
$1.2B
2021
$4.2B
$757.5M
$1.4B
$867.4M
14.3%
18.0%
$25.1M
$1.4B
2022
$5.1B
$984.6M
$1.6B
$1.1B
17.9%
19.4%
$20.8M
$1.4B
2023
$5.3B
$1.2B
$1.5B
$1.3B
20.0%
23.1%
$18.1M
$1.4B
2024
$6.1B
$2.3B
$1.3B
$2.4B
25.2%
36.9%
$15.6M
$3.9B
2025
$7.1B
$1.3B
$1.3B
$1.8B
4.7%
18.9%
$13.5B
$2.9B
Warren & Charlie
Buffett / Munger — quality, moat & valuation
SYNOPSYS INC (SNPS) — Investment Memo
🐂 The Bull Case (Warren's voice)
The Casino Toll Booth: In the semiconductor gold rush, everyone wants to be the miner. We prefer the shovel seller. Synopsys owns the software that makes modern chip design possible; without them, the lights go out at Nvidia, AMD, and Intel.
Irreplaceable Habits: Once an engineer learns the Synopsys workflow, they don’t switch. The cost of retraining a team and porting multi-year designs is astronomical compared to the cost of the software license. That is a durable moat.
Compounder Economics: The beauty here is that Synopsys doesn't have to guess which chip manufacturer will win the market share battle. They get paid by the winners, the losers, and the startups. It is a recurring revenue stream that scales with the global demand for compute.
Price of Entry: At the right price, this is a "set it and forget it" business. We aren't looking for a quick flip; we are looking for the next 20 years of electronic design evolution.
🐻 The Bear Case (Charlie inverts)
The Debt Reckoning: Munger’s rule: Debt is the path to ruin. Taking on $13.5B in debt for the Ansys acquisition is a regime change, not a strategy. They’ve essentially bet the house on an expensive synergy that may never materialize if the cycle turns.
Accounting Hallucinations: When we see $2.3B in Net Income but only $1.3B in Free Cash Flow, our alarms go off. You cannot eat "non-cash adjustments." The business is painting a picture of profitability that the cash register does not support.
The "AI Commoditization" Risk: We are betting on a moat that assumes complexity is permanent. If AI evolves to automate chip design significantly, the need for these massive software suites could erode, turning a high-margin premium product into a commoditized utility.
Margin Erosion: The volatility in margins (dropping from 36.9% to 18.9%) suggests this is not a well-oiled machine, but a business struggling to reconcile its expensive growth-by-acquisition addiction with actual operational efficiency.
💰 Valuation & Margin of Safety
Based on the provided DCF:
Intrinsic Value Estimate: $201.38 per share.
25% Margin of Safety Entry: $151.04.
50% Margin of Safety Entry: $100.69.
The market price is currently detached from this intrinsic value, trading deep into the "hope" territory rather than the "value" territory. We are paying for massive growth that may never arrive at the margins we demand.
Verdict: PASS
We are passing on Synopsys because the current valuation reflects perfection while the balance sheet reflects a dangerous pivot toward debt-fueled expansion. We refuse to pay a premium for a company masking real cash generation problems with accounting ingenuity. This business might be a wonderful company, but at these prices, it is a terrible investment.
Research Notes· Money Model · Moat · Financials · Management
Data sourced from SEC EDGAR XBRL filings (10-K only). For educational purposes — not investment advice.