You Can't Spend Earnings

You can't spend earnings. At first glance, this probably seems like an odd statement, possibly even incorrect. However, it is not only correct, but an important investing axiom for any type of investor. Let me explain.

Earnings are that which is derived from the exchange of a product, service or other, less associated expenses. Ultimately, it is our desire that earnings are converted to something that can be spent, such as cash. You may be thinking that is just semantics, but is it? In the article "The Most Important Financial Statement", I mentioned that cash flow is what ultimately drives the value of any financial asset, yet there is sometimes a disconnect between earnings and cash. Through fraud and manipulation an income statement can be...

Source: Dividend Growth Stocks

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