Skip to main content
Message Font: Serif | Sans-Serif
 
No. of Recommendations: 2
Thanks for buying the book and I see your point.

Think of it this way: the defensive investor is more conservative than the GAAP investor (think commercial banker), the enterprising investor is more forward-thinking (venture capitalist.)

Defensive expenses investment in fixed and working capital because they are uses of cash. In the defensive and GAAP income statement outlays for intangibles like R&D is also deducted right away.

Enterprising depreciates intangibles over its useful life (which tends to increase earnings), but expenses the noncash cost of stockholders' equity. The enterprising investor is optimistic (match R&D with hoped-for future revenue), but not foolish--his or her money has a cost, just like the venture capitalist who pencils in a required rate of return when deciding whether to invest in a promising opportunity.

Put differently, the defensive income statement has two adjustments, both of which tend to decrease earnings. The enterprising income statement also has two adjustment, one which increases earnings (intangibles) and the other which decreases earnings (stockholders' equity).
Print the post  

Announcements

What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.