Whats the defensive income statement?
The defensive income statement tells you whether or not a company can self-fund its growth from internally generated free cash flow. And what’s unique about the defensive income statement is that it expenses investments in fixed and working capital immediately. Q: Instead of putting those costs on the balance sheet? A: Correct. An accrual income statement does not record a direct charge for investment in fixed and working capital. Q: You also mentioned an enterprising income statement. A: The enterprising income statement is unique in two respects. It converts things like research and development, employee education, marketing, and advertising from operating expenses into capital assets. This fulfills a key principle of accrual accounting, namely, matching sales with expenses. And so for a company that’s investing in its future growth, one of the prime drivers of future growth is intangibles. And the enterprise income statement rewards companies for investing in growth, where the accru
