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Warren Buffett defined the earnings called “Owner Earnings” that is more relevant to the valuation of a company than the reported earnings on the income statement. The owner earnings can be calculated by adjusting the reported accounting earnings in the following ways:
Owner Earnings = (a) Reported earnings + (b) depreciation, depletion, amortization and certain other non-cash charges – (c) the average annual amount of capitalized expenditures for plant and equipment
= cash flow from operating activities – capital expenditures
Reference Documents: 1986 Berkshire Hathaway Shareholder Letter
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