Cash Is a Reality Check

Many managers are too busy worrying about income-statement measures such as EBITDA to give cash much notice. Boards of directors and outside analysts sometimes focus too heavily on the balance sheet. But there is one investor who watches cash closely: Warren Buffett.

Warren Buffett may be the single greatest investor of all time. His company, Berkshire Hathaway, has invested in scores of companies and achieved astonishing results. From 2006 through 2010, the book value of Berkshire Hathaway—a conservative indicator of its worth—rose at an average annual rate of 10.0 percent, compared with 2.3 percent for the S&P 500, a broad gauge of publicly traded stocks. That continued an exceptional investment performance dating ...

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