Rule #1 Finance Blog

With Investor Phil Town

InvestED: Ep. 182 – Understanding Owner Earnings Net Income

This week we’ll dig deeper into last week’s topic of Owner Earnings. We will go over the formula we lay out in our book Invested. We will explain what to look for and why some numbers are not what we think by dispelling misconceptions about generally accepted accounting principles.

What’s the Formula?

  • Start with Net Income
  • Add interest
  • Add depreciation
    • We need to be cautious because the IRS view of the depreciation can be incorrect.

Formula Notes:

  • Start with the three financial statements put out by each company
    • Income Statement
    • Balance Sheet
    • Cash Flow Statement – 3 categories
      • Operating Activities – produces most of your cash
      • Cash as a result of investing
      • Financing Activities
  • Take the Net Income from the Income Statement.
    • Shift Net Income into actual cash flow.
  • This is intended to eliminate the issues with accounting.

Danielle and Phil Recommend:

 

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On the InvestED podcast, Phil and his daughter Danielle shine a light on the successful investing strategies that gurus like Warren Buffett have used for 80 years. Listen in for a great stock market education on basics, learn how to invest on your own, and follow along with real-time examples and investing tips from week to week.