Tren Griffin @trengriffin I work for Microsoft. Previously I was a partner at Eagle River, a private equity firm established by Craig McCaw. I am on the board of directors of Kymeta. Apr. 13, 2020 1 min read

1/In the real world people running a business and wise investors are focused on cash flow. Despite this Goldman writes: "The path to earnings normalization is everyone's focus." Every sheep maybe but not "everyone." Sheep like earnings because they're lazy and cash requires work.

2/ As you know: "Expected long-term cash flows, discounted by the cost of capital—not reported earnings—determine stock prices" because you've read "The Trouble with Earnings and P/E Multiples" http://csinvesting.org/wp-content/uploads/2015/02/Trouble-with-Earnings-PEs.pdf  by Rappaport and Mauboussin. Please don't tell me you haven't.

3/ "It’s the absolute dollar free cash flow per share that you want to maximize....Investors can’t spend percentage margins. What matters always is dollar margins: the actual dollar amount." Jeff Bezos

You can't pay a supplier or employee with "earnings." Cash is King and Queen!

4/ Public companies must file a compliance document that contains "earnings." It's relevant, but everyone can see it. Some people will use it to compute various ratios hoping you will pay them a fee. If you want a real advantage, look at free cash flow. Do the work. Or don't.


You can follow @trengriffin.



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