Posted 3/2/2024, 2:40:00 PM
Buffett: Net Income a Worse than Useless Metric, Prefers Operating Income to Evaluate Business Performance
- Warren Buffett says net income metric is "worse than useless" for evaluating a business; prefers operating income
- Net income includes unrealized capital gains/losses which don't reflect operations & can fluctuate wildly
- Operating income better gauges day-to-day business operations and long-term prospects
- Metrics like EBITDA can paint an overly rosy picture if losses/negative cash flow persist
- No single metric tells the whole story - analyze financials over time to determine if an investment makes sense