Analysts and investors sometimes focus more on cash earnings than GAAP/IFRS earnings. To get a sense of the extent to which investors focus on cash earnings for the company you are modeling, look at a few analyst/broker research reports on the company or peers in the company's industry if not public. Cash earnings add back non-cash expenses, such as amortization and stock-based compensation, as well as one-time charges. Depreciation is not backed out, however, because it is a real expense that is a proxy for capital expenditures.
We add a couple of performance metrics related to the cash earnings we just computed and, while we are here, a handful of margins and returns. Inspecting the margins and returns over the projection period can help us decide whether we need to tweak any of our operating assumptions.comments powered by Disqus