I’m taking the liberty to answer and I’m aware the question was not for everyone, just Ismohit
I think you misunderstand Buffet here
If you were to start say a brick building business.
You would pay 10 lakhs for machine and every year you would make 2 lakhs profit.
You collect these 2 lakhs and keep in your business
Anyone wanting to buy your business in year 3, can see that after your costs you have 6 lakhs. Maybe a bit less because maybe a customer didn’t pay you. So let’s say you have 5 lakhs
Buffet is saying in the text you copied that for a construction business because they have to constantly keep a land bank and machinery, their books won’t show this cash.
In the example I gave you, if at year 3 you decide to invest in one additional machine, you will show minus 5 lakhs if new machinery is 10L
If you have an imaginative mind, you will instantly realise how you can game this system.
I won’t go into gaming the system but Buffet measures cash generated and makes other allowances for businesses where it is difficult to measure.
Once you understand where most of the manipulation occurs in company financials, your job as investor is a bit easier as then you only have to find companies which have a genuine growth prospect
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