I have read few articles on Mr. Warren Buffett's investing strategy which may help throw some light on how he generated such returns. I came to know that Mr.Buffett focuses on return on equity (ROE) rather than on earnings per share. Mostly people understand that ROE can be distorted by leverage (a debt-to-equity ratio) and therefore is theoretically inferior to some degree to the return-on-capital. Return-on-capital is more like return on assets (ROA) or return on capital employed (ROCE). He seeks to estimate a company's intrinsic value and call this process as BOND MATHS. He looks at what he calls owner's earnings which cash flow available to shareholders or free cash flow to equity (FCFE). We can state it as, net income + D&A - CAPX - (change in W/C).He takes into consideration the future owner's earnings and then discount them back to present.