This post is a look at Bill’s rule for smart investing 3

It is important to distinguish between reported earnings and cash earnings. Many companies must use a substantial portion of earnings for forced reinvestment in the business merely to maintain plant and equipment and present earning power.

Because of such economic under-depreciation, reported earnings of many companies may overstate their true cash earnings. Cash earnings are those earnings which are truly available for investment in additional earning assets, or for payment to stockholders.