This chapter is for everyone including the novice investor, the finance professional, and the seasoned accountant. We will thoroughly discuss some common and yet very important terms, but we want to make sure you understand how they will be used in the following text. The finance people and accountants may use certain terms a bit differently than they are used in Clean Surplus Accounting. Thus, in order to fully understand the concept of Clean Surplus, we must all begin on the same page.
If you don't understand any part of the next several pages, don't worry. We will go over this information again and again as we go along.
The rest of this book will differentiate the average investor and the professional money manager from you, who after understanding this book will be able to outperform all those around you most of the time and certainly over the long term. Why? Because Clean Surplus allows you to find the companies making the most efficient use of investment capital.
Let's get on with some simple but very important concepts. Please be aware that I am taking great literary license in order to make these concepts as simple as possible.
The income statement is also called the “statement of operations” or a “profit and loss” (P&L) statement. In other words, money in (revenues and/or sales) minus money out (expenses) leaves us with net income.
Continuing on, net income ...