You think the fact that people don't like you means they won't buy your products, even if it's the best on the market for their application? net income of people in it goes up 15%.
Because between revenue and net income , you have-- this pointer probably doesn't work very well-- but you have lots of line items that management can utilize to derive whatever net income they want.So revenue is the most important.
If we didn't have them we'd have chaos. But net income and earnings per share, we think of them as hard numbers or fixed numbers. But that's not the case as I learned 30 years ago when I read this landmark book, "Quality of Earnings," by Thornton O'Glove.
You had $59 billion of expenses. Your net income is $16.4 billion. And earnings per share almost $22 a share.
So when you're analyzing a company, you want to look from the top down. The net income number is the first line item on the operating cash flow statement, so when you analyze cash flow, if the net income happens to be manipulated, then cash flow quality's probably low as well.
And why is that? Because between revenue and net income , you have-- this pointer probably doesn't work very well-- but you have lots of line items that management can utilize to derive whatever net income they want.
A comment that's been attributed to him is he's sort of said your margin is my lunch. So people who are optimizing around free cash flow instead of net income .
And now we're going to return to Alphabet and we're going to look at five years worth of your performance. Now the blue bar, that's your GAAP net income . And that's in the middle because it's kind of in between these two opposing viewpoints about what is corporate profitability.
Motors uh recently reported its first annual profit since 2004 and its largest ual profit since 1999 um Chrysler is making an operating profit not yet net income but an operating profit and very importantly the uh the whole set of business practices around these companies that
I'm going to talk about the price-earning ratio later. So the way he defines owner earnings, he says it's net income plus depreciation plus amortization
So that's impressive. We have our defensive profits on the left. And you see that beginning in 2013, the gap between GAAP net income has widened. And that's because you're making tremendous investments in fixed capital.
And it's kind of the reward for the discomfort, if you will. So if the company's earning $1 billion in free cash flow, or net income per year, and it's selling for $10 billion,
It's all driven by expectations. If you think about an income statement, you have revenue on the top and net income on the bottom. So the earnings that a company reports are the least important line item that they ever talk about.