What a 4 Year Old Teaches Us About Earnings Per Share

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So, I overheard a Dad say something interesting to his 4-year old son (at least he looked to be about 4). His son asked him a question and he said: “I just answered that question, so I’m not going to answer it again”.

That approach would have saved me a lot of time when my kids were small…..

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But it brings up an important point for investors, because you’re bombarded with data and it’s hard to know what questions to ask. When it comes to stock performance, one critically important measure of performance is earnings per share (EPS), and EPS has more than one definition. Make sure you’re clear about which EPS number you’re told- the numbers are very different.

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What A Telsa Car Crash Teaches Us About Investor Disclosure

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So, how much information do you need to make an informed decision?

Unfortunately, Tesla’s Motors problems with autopilot cars provide a great discussion about required disclosure to investors. This CNBC video with a former SEC Chairmen discusses whether or not Telsa had a duty to disclose a car accident that occurred with an autopilot vehicle sooner to investors. Could the lack of timely disclosure impact an investor’s decision about Telsa as an investment?

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Warning to Investors: Contribution Margin Is Not Company Profit

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So, we’re in a crazy political period, and it’s hard to know just what is true in a political ad and what isn’t true. In the investment business, however, we have extensive rules on disclosure to investors, and those rules are in place to provide all stakeholders- including investors- enough to information to make informed investment decisions.

I was pretty blown away by a recent article about startup firms touting the fact that they generated a positive contribution margin– and inferring that contribution margin equals profit.

It doesn’t- and it’s critically important that investors understand the difference.

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