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June 2014

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The Fresh Market - the leader in grocer operational efficiency

June 03, 2014 – Comments (4) | RELATED TICKERS: TFM , WFM

“Of course, there are plenty of ways we could define what makes a business either good or bad…Obviously, any of these criteria, either alone or in combination, would be helpful in evaluating whether we were purchasing a good or a bad business… For instance, what if we found out that it cost Jason $400,000 to build each of his gum stores (including inventory, store displays, etc.) and that each of those stores earned him $200,000 last year. That would mean, at least based on last year’s results, that a typical store in the Jason’s Gum Shops chain earns $200,000 each year from an initial investment of only $400,000. This works out to a 50 percent yearly return ($200,000 divided by $400,000) on the initial cost of opening a gum store. This result is often referred to as a 50 percent return on capital…which sounds better—a business that earns a 50 percent return on capital or one that earns a 2.5 percent return on capital? Of course, the answer is obvious… You would rather own a business that earns a high return on capital than one that earns a low return on capital!”  [more]

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