Profit, cash and the investment case
Read the connection between earnings and cash before building a valuation.
Insights, articles & free lessonsFollow the argument.
Follow the argument.
Inspect the evidence.
A market view should show its working. Explore financial questions through evidence, calculations and the assumptions that could change the answer.
The connected market
Follow the connection.
A decision in one market can reach another. Trace the mechanism before reaching for an explanation.
1ASSET LAYER
1.080 ×
The asset’s growth factor in dollars.
2CURRENCY LAYER
0.950 ×
INR per USD: translation into rupees.
3WEALTH IN MOTION
₹10,000.00
The same two factors trace this rupee path.
01 / START WITH THE ASSET
A dollar asset return creates the first growth factor, 1 + a. The dashed chart line holds currency unchanged.
Return in INR+2.60%
₹10,000 becomes₹10,260.00
THE CONNECTION
+8.0% and -5.0% compound to +2.60%. The interaction adds -0.40 percentage points to the simple sum.
Go deeper: read the mechanism and definitions
The endpoints compound exactly. The path between them is an explicit constant-log-growth interpolation so you can see the mechanism. It is not a stochastic price model. The effective same-period returns a and f are different from the continuous log-growth rate k. A currency hedge would change this example.
Let S be the exchange rate in INR per USD. One dollar buys S rupees. The currency return is S₁/S₀ − 1: a negative value means the rupee has strengthened. Multiply the asset’s growth factor by the currency’s growth factor. Adding the two percentage returns misses their interaction term.
Hypothetical, unhedged, same-period investment. Costs and taxes excluded. Globe routes show connections, not the size or direction of actual capital flows.
All articles & lessons
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Our research method
Good reasoning leaves a trail.
An approach you can carry into every course, article and investment question.
Frame the question
Be clear about the decision, the instrument and what you need to know.
Trace the evidence
Start with primary sources. Separate facts, estimates and assumptions.
Build and challenge
Reconcile the calculation, test scenarios and look for what might be missing.
Explain the conclusion
Make the argument, its limitations and what would change your mind visible.