Why does Buffet urge investors to use EBIT and not Net Income as metric for valuating companies?

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by mrcet007

Warren Buffett’s annual letter to Berkshire Hathaway shareholders


Charlie and I urge you to focus on operating earnings – which were little changed in 2019 – and to ignoreboth quarterly and annual gains or losses from investments, whether these are realized or unrealized.

My assumption

  • operating earnings = EBIT
  • quarterly gains/losses = Net income/profit

Why is EBIT a better metric than Net Income for valuating companies?




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