Some people call it cooking the books. Others call it gilding the Lilly. We call it human behavior.
What do you do when you want a different result from the one you got? Well, some would say if you're a rationale (whatever that means in these days), intelligent human being, you change or alter your behavior.
And that's what this WSJ story is about, "'Adjusted' Earnings Cloud Results."
What's adjusted earnings? Well, back in the halcyon days of dot-com as the Journal notes, one huge tech company practically everyone has heard of and is still around today reported beating its earnings for 14 straight quarters by one penny. That's adjusted earnings. The stock price did what any Wall Street veteran would expect in what became famous as the "Irrational exuberance" of the time, it went up.
We are not probability or odds experts, but one penny for 14 straight quarters brings up one well known street analyst of the day later reprimanded by the SEC who praised firms publicly but privately named them POSs. That's adjusted earnings.
It's corporate America and Wall Street, Jake.
A financial obfuscation of the dot-com era is making a comeback: Hundreds of U.S. companies are trumpeting adjusted net income, adjusted sales and “adjusted Ebitda.”
These adjusted measures paint a rosier picture of corporate earnings. Without them, third-quarter earnings per share fell 13% for the biggest U.S. companies, according to Deutsche Bank research, instead of falling 0.1% with them.
These adjusted measures paint a rosier picture of corporate earnings. Without them, third-quarter earnings per share fell 13% for the biggest U.S. companies, according to Deutsche Bank research, instead of falling 0.1% with them.
About one in 10 major securities filings this year used the term adjusted Ebidta—or adjusted earnings before interest, taxes, depreciation and amortization—up from one in 40 a decade ago. About a quarter of earnings-related filings this year included figures that don’t comply with generally accepted accounting principles, or GAAP, as well as more standard measures, according to a Wall Street Journal analysis of 10-K, 10-Q and 8-K filings.
The terms now crop up in quarterly earnings releases and securities filings for companies as varied as Grape-Nuts-maker Post HoldingsInc., chemical company Dow Chemical Co., wireless operator AT&TInc. and hamburger chain Wendy’s Co.
As nearly always, the corporate reason for all this: to help investors understand the balance sheet better.United Technologies Corp. last week was the latest big company to embrace adjusted earnings measures. By adhering to accounting rules, “we’re actually confusing people more than we were helping people understand what’s going on in the business,” said CEO Greg Hayes. “This is a simplification and really allows the investors to more easily understand what the businesses are doing.”
The result, however, is a new yardstick with no standard accounting definition and, often, little comparability to other companies or even other time periods.
The terms now crop up in quarterly earnings releases and securities filings for companies as varied as Grape-Nuts-maker Post HoldingsInc., chemical company Dow Chemical Co., wireless operator AT&TInc. and hamburger chain Wendy’s Co.
As nearly always, the corporate reason for all this: to help investors understand the balance sheet better.United Technologies Corp. last week was the latest big company to embrace adjusted earnings measures. By adhering to accounting rules, “we’re actually confusing people more than we were helping people understand what’s going on in the business,” said CEO Greg Hayes. “This is a simplification and really allows the investors to more easily understand what the businesses are doing.”
The result, however, is a new yardstick with no standard accounting definition and, often, little comparability to other companies or even other time periods.
No comments:
Post a Comment