1. You really should read Jeff Bezos's 2004 letter to Amazon.com's Shareholder.
It starts like this:
To our shareholders:
Our ultimate financial measure, and the one we most want to drive over the long-term, is free cash flow per share. [Myemphasis]
Why not focus first and foremost, as many do, on earnings, earnings per share or earnings growth? The simple answer is that earnings don’t directly translate into cash flows, and shares are worth only the present value of their future cash flows, not the present value of their future earnings. Future earnings are a component—but not the only important component—of future cash flow per share. Working capital and capital expenditures are also important, as is future share dilution.
Though some may find it counterintuitive, a company can actually impair shareholder value in certain circumstances by growing earnings. This happens when the capital investments required for growth exceed the present value of the cash flow derived from those investments.
He then goes on give an imaginary example (of an entrepreneur who invents a teleportation machine) which very simply, but clearly, demonstrates his point.
It's only a couple of pages long: Amazon_2004_shareholderLetter.pdf
2. I found the link to the shareholder letters here: http://daslee.me/reading-jeff-bezos. You can download a 40+ page document which contains all of the letters at the bottom of that post. It's a rare chance to get inside the mind of - perhaps - this century's greatest business man.
3. Why is this important?
It's one of the surprising lesson's from TOC: modern accounting principles frequently cause businesses to make stupid decisions.