Warren Buffett's stock screening criteria
Warren Buffett's approach isn't a secret formula — it's a short list of demands a business has to meet before he'll own it. Wonderful economics, low debt, a price below value, and a business he actually understands. Here are the six criteria, and the concrete numbers each one translates into when you screen for it.
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01 A business you understand
Buffett only buys what he can explain — how the company makes money, why customers keep coming back, what could break it. If a business can't be summarized in a sentence, it goes in the “too hard” pile, no matter how good the numbers look.
02 A durable competitive advantage
A moat — brand, network effects, switching costs, cost advantage — protects profits from competitors. In the numbers, a moat shows up as high returns on capital that persist for years rather than getting competed away.
03 High returns on capital
Return on invested capital and return on equity measure how much profit a business generates per dollar put to work. Sustained readings above roughly 15% mark the genuinely high-quality compounders Buffett favors.
04 Low debt
A wonderful business doesn't need leverage to look wonderful. The cleanest test is how fast debt could be repaid: long-term debt under about three years of earnings — and net debt under three years of free cash flow — means bad years are survivable and management isn't borrowing to flatter returns.
05 Consistent growth
Earnings, equity, and cash-flow growth that compound steadily over ten years beat a single explosive year. Consistency is evidence the advantage is real and repeatable.
06 A price below value
Even a wonderful business is a poor investment at the wrong price. Buffett waits to buy below a conservative estimate of value — the margin of safety that protects against being wrong.
From criteria to a screen you can run
The first two criteria — understanding and moat — are judgment calls. The rest are measurable, and that's what makes them screenable. Filter for returns on capital above 15%, debt repayable in roughly three years of earnings, and a decade of steady growth, and a universe of thousands of companies collapses to a short list worth real research. Reading the quality scorecard walks through each metric in depth.
Then comes price. A company can ace every quality test and still be a bad buy if it's expensive. Estimate what it's worth with the intrinsic value calculator, then demand a margin of safety before buying. Quality tells you what to want; price tells you when to act.
Frequently asked questions
What are Warren Buffett's stock screening criteria?
Buffett looks for a business with a durable competitive advantage (an economic moat), high and consistent returns on capital, low debt, honest and capable management, and a business simple enough to understand — then he insists on buying it for less than it's worth. In numbers, that often means sustained return on invested capital and equity above roughly 15%, debt low enough to repay in about three years of earnings, and a price well below intrinsic value.
Does Warren Buffett use a stock screener?
Buffett relies on judgment and decades of reading financial statements rather than a single screen, but his criteria translate cleanly into screenable filters: returns on capital, debt levels, growth consistency, and valuation. A screener narrows thousands of companies to a handful worth real research — it can't replace the research itself.
What return on equity does Buffett look for?
There's no official cutoff, but a common interpretation of his preference for highly profitable businesses is a return on equity sustained above about 15% over many years. Consistency matters more than a single high reading — a decade above 15% signals a durable advantage far more than one strong year does.
What is an economic moat?
An economic moat is a durable competitive advantage that protects a business's profits from competitors — a strong brand, network effects, high switching costs, a cost advantage, or regulatory protection. Moats show up in the numbers as high returns on invested capital sustained over many years, which is why ROIC is the single most telling quality metric.
Can I apply Buffett's criteria to my own investing?
Yes. The criteria are public and the math is decades old. The work is in gathering ten years of financials for each company, normalizing them, and recomputing on every earnings report. Tools that automate that grind let you focus on the judgment Buffett's approach actually depends on — what you understand and what it's worth to you.
Screen on these criteria automatically
Wonderfolio scores every company against strict quality thresholds — returns on capital, debt, growth — and flags the ones trading below value. On iPhone, iPad, and Mac.
Get startedWonderfolio is an educational research tool. It applies publicly known value-investing criteria to public data and is not affiliated with or endorsed by Warren Buffett or Berkshire Hathaway. Nothing here is personalized investment advice or a recommendation to buy or sell any security.