2004 – It’s all about the cash flow

I have always been intrigued by the letters sent to shareholders by both Warren Buffet and Jeff Bezos. They are inspiring and, for wannabes like yours, indeed a source of motivation and hope. So I am creating a series of articles on what learnings I took away from the letters of Jeff Bezos. This is the eighth letter in the series.

You can check out the complete series here: https://alphonserajdavid.com/category/book-reviews/non-fiction/jeff-bezos-stakeholder-letters/

Learning #1: Income statement and cash flow statements are two different beasts

Just because you make an excellent topline doesn’t mean your business is going well. The devil lies in the detail. The detail is the free cash flow per share.

Focusing on growth can sometimes be detrimental to company value as a business. If the investment needed for change is greater than the present value of all future cash flows, we are destroying value and not creating it.

Learning #2: Focus on Cashflows leads to more innovation

If we focus on cashflows and balance the Cap-ex and cashflow tradeoff, we will have more time and energy to focus on new Innovations. As Zuck once said, Intelligent fast failure or rather move fast and break things but protect your cash flow at all costs.

Learning #3: Do not dilute ownership

Jeff doesn’t just talk about free cash flow. He talks about free cash flow per share. Dilution of shares as you grow bigger just means you are running fast just to stand in the same place. So focus on managing working capital and Cap-Ex and make sure dilution is kept to a minimum.

Learning #4: In the end, cash is king