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Strategies & Market Trends : Gorilla and King Portfolio Candidates
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To: Skeet Shipman who wrote (50274)2/10/2002 7:40:28 PM
From: Pirah Naman  Read Replies (1) of 54805
 
Capital expenditures are more precisely associated with future cash from operating earnings.

Capital expenditures are generally as ongoing as are sales. No matter how you wish to view the calendar or lifecycle of a company, at any point you can compare the actual cash coming in to the actual cash which has gone out.

So future cash from operating earnings less previous capital expenditures plus return on invested capital is more exactly earnings.

Future cash is not a profit made to date. When you add in "return on invested capital" you aren't even keeping your units consistent.

For young growing companies capital investments provide for a significant portion of future earnings .

Yes, it was noted in the series that young growing companies may have high capital expenditures for this purpose. That does not change the fact that those profits are not yet made.

If the capital investments are required to maintain sales rather than grow sales then your profit definition is correct.

The definition is correct as it stands. What you are saying is that some current real profit may be sacrificed for future profit. There is no disagreement with that. But future profits - which are not certain - do not affect today's balance.

- Pirah
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