Philosophy

After removing all the distortions created by GAAP accounting, we determine how efficiently the company is being run independent of how management chooses to finance the company. The idea is to have some sense of what the company's operating performance is regardless of the particular way the company has financed its capital.

The whole idea of "earnings growth" takes on less importance as a stand alone concept when you're looking at how much capital is being poured into a business. It is real easy to grow earnings by investing more money into the business. Successful companies create shareholder value by taking into consideration all costs associated with that investment including the opportunity cost of equity capital.