By: Charles Weller

Charles Weller — Sat, 11 Oct 2008 16:50:38 +0000

Please take “Cash flow positive” thinking to the next level with Prof. Rappaport of Northwestern’s “Long Term Cash Flow” (LTCF) accounting metric that replaces “accrued earnings.”
As you state, cash flow is the key.
For another, he shows that financial shennanigans will not be eliminated, no matter how much more regulation and regulators are added,until accrued earnings are replaced by LTCF as the key metric.
Best of all, LTCF is something the ordinary person can understand and use to take back control of their futures — potentially very soon, thus restoring widespread hope for the future that is so urgently needed.
Why? For one, cash flow is something everybody understands.
For another, “long term” is a business question, not mathematical mumbo jumbo.
Again, whether a company will generate cash flow for the long term is a fundamentally different analysis than accrued earnings. Again this analysis is something many people can understand, especially using the business tools Rappaport proposes such as Michael Porter’s. I’ve written a book with Porter for the antitrust community that includes not only his well-known 5 Forces tool, but two other tools he’s developed that can be understood and used by anybody.
Mike’s 3 tools, unlike any others I know of, can explain more than 80% of the differences between 134 countries GDP per capita — aka cash flow.
The good news is the SEC has the legal authority to drop FASB rules, as it has already done in part and has a roadmap to do over the next few years.
Why doesn’t the VC community lead the drive to change to Rappaport’s LTCF? My paper exploring more of its truly thrilling implications is available on request.

Comments on: Sequoia Announces the New VC Reality

By: Charles Weller