Valuations: Operating Cash Flows, not Earnings Per Share

When you remove the noise, valuation modeling becomes more sensible and interpretable.

Cash EPS = [net income + “non-cash transactions (amortization, depreciation, deferred tax, etc.)”] / diluted shares outstanding

Time value of money doesn’t change because of accounting rules. Removing non- cash items for valuation purposes is the equivalent of saying those dollars do not participate in the money multiplier effect.

Thus, real cash growth is often suppressed and forward valuations look expensive.