It's the same plot.

And why don't you like them as much?

So the amount that this number grows by, the amount that our equity grows by, is earnings.

One of the viewers pointed out not incorrectly that one definition of return on asset so this whole video's going to be on return on asset that one definition of return on asset, and if you look it up on some of the finance sites or even some finance textbooks, they'll tell you it's net income over total assets.

The return on the investment will be high.

So basically Republicans who make more than 250,000 dollars a year don't want to be taxed.

So a plus b have to be equal to 50.

Profitable.

And the other reason is, this was just 2008 earnings.

Maybe Abby made 50 and Ben earned 0.

And we can eyeball it right here.

Because when someone says earnings, are those the earnings last year?

And my introduction to business was in these 100 little infuses of capital.

Everything on this line would be a valid combination of

In this example that I did in the previous video, it was the pre tax return on asset.

Because to some degree, rental is kind of the earnings on a home.

This was the earnings of the company last year, or the last 12 months.

In return on equity, the numerator is the net income that we got, so it's 350,000.

In the last video I talk about how both Ben's Shoes and Jason' shoes are fundamentally the same business but they have different capital structures.

Let's compare EBlT to operating profit.

What if the bake sale only netted 71 dollars for charity because it made no investment in its scale and the professional fundraising enterprise netted 71 million dollars because it did?

So let's look at them over the course of one year.

So notice.

Invest financial assistance, but also management assistance.

So help us go from this to this.

What does that tell us?

It's just 10 because one, this is a nice round number.

When? I said it's time to monetise the site.

The investment now yields him 6 .

The reason why you are willing to pay a higher Price to

And what's left over for the equity?

So let me switch colors just to ease the monotony.

And they were male and female 18 30 and they were casual fans.

And the first one is that this whole idea about revenue stream, Steve, I get it.

And we add back the interest, at least in this example, we get to an operating profit number.

And so I'm left with net income of 350,000.

This is really important to pay attention to, because so many people say, oh, a company made this much.

The earnings I just said, this is actually what happened to the company.

So now we add an interesting line.

One of the interesting thing about costs is that in the old days costs and revenue, the minute you started your company, your investors said oh, we know how to track all this.

We learned that in our first video.

So in 2013 you'll be making 16.

We are assuming a very simple world, were the is no taxes, we have no debt, we have no intrest or things

And if you are an investor, you're probably going to want to do the last of the three.

And so, using patient capital money that they could raise early on, that actually got below market returns and was willing to go the long haul and be combined with management assistance, strategic assistance they've now created a company where they purchase from 7,500 farmers.