March 7, 2018
The business media, financial analysts, and many management teams are intensely focused on corporate earnings. Business commentators obsess about what a company’s earnings per share (EPS) were last quarter, how they compared with last year’s quarter, and what they are expected to be in the next quarter. And management teams often rationalize their cost structures so they can drive faster earnings growth.
But the focus on EPS misses half the story. Although EPS is an important part of value creation, it is only one side of the value equation. Cash is king, and a company’s value is ultimately driven by market expectations of future cash flows. On top of managing earnings, managing cash flows means making the most of the investments of capital that were made to generate those earnings. Although companies have made great strides in optimizing earnings, many struggle — or fail — to bring the same rigor to capital spending.
What are the three keys for creating a new framework for capital spending? Learn more in our latest article from strategy+business, There’s More to Earnings than Earnings per Share.