Interesting article out in the Harvard Business Review about whether financial statements, like the income statement and balance sheet, are still relevant for tech companies. Here are a few examples of how the bottom line doesn't matter when it comes to these digital companies:
The crux of the argument is that traditional financial statements do not capture where value is being created in these digital companies. Unlike an industrial company like Exxon or General Electric, digital companies don't have much in the way of inventory or plants, property and equipment (PP&E).
Digital companies rely on their intangible assets and financial statements have no way of capturing how much more valuable Facebook or Steemit's network has become as more people become part of it. This is very different from a traditional company where you have to depreciate an asset the more it is used.
Back during the dot-com bubble, profitability was sacrificed for eyeballs. All the financial media was focused on the 'eyeball economy'. And we remember how that turned out, don't we?
The author makes a good point, however, that for digital companies, measuring them by their Net Income is rather meaningless. Instead, their profitability should be measured by how much their cash balance has increased. That cuts through a lot of bs and makes sense to me.
