Knowledge is important. Depreciation is taken against earnings. Higher earnings may well reflect a depressed depreciation of capital investment such as equipment. The equipment may thus appear to be newer than it really is. Many investors, not knowing this, place value on the earnings reported by businesses in which they invest.
A better measure of 'investability' would clearly appear to be cash flow. See generally Gretchen Morgenson, "Fair Game/Why All Earnings Are Not Equal" p. 1, col. 2 (New York Times Nat'l ed., "SundayBusiness" Section, Sunday, January 10, 2009).
Question: Are Directors and Officers who depress depreciation to increase earnings reports fulfilling their Fiduciary Duties to their Shareholders? Are they fully and fairly informing people who are potential Shareholders, namely, investors? Are Directors and Officers who choose to emphasize earnings over cash flow meeting their obligations, including Fiduciary Duties, to the Shareholders?
The answers to these and similar questions may well arise as Insurance Coverage Questions concerning Directors and Officers Insurance Coverage.
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