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Bloopers & Blunders: Earnings vs. Value

Quotation

"The ultimate measure of a company’s success, of course, is how much it earns--and whether it can expand those profits in the future." "The Money 30," Money, June 1996.

Analysis

Earnings are not a good measure of success as they can be legally manipulated by changing accounting practices, and most importantly they ignore risk of the company. Thus, you should measure success by the amount of value creation to shareholders. The amount of value a company creates can be measured by the total return to shareholders; capital gains and dividend yield.