P/E multiples should be the result of the valuation exercise and not the cause. Evaluating accounting numbers from the right perspective is vital to succeeding as an investor. For example, goodwill can reflect either having paid too much for an acquisition or enduring long-term intangibles whose value increases over time. Investors will have to figure this out, because the accountants won’t. With that in mind, let us evaluate some of the important components of economic earnings, namely, maintenance capex and working capital.
