Skip to comments.Fantasy Math Is Helping Companies Spin Losses Into Profits
Posted on 05/01/2016 12:18:04 PM PDT by Lorianne
Companies, if granted the leeway, will surely present their financial results in the best possible light. And of course they will try to persuade investors that the calculations they prefer, in which certain costs are excluded, best represent the reality in their operations.
Call it accentuating the positive, accounting-style.
Whats surprising, though, is how willing regulators have been to allow the proliferation of phony-baloney financial reports and how keenly investors have embraced them. As a result, major public companies reporting results that are not based on generally accepted accounting principles, or GAAP, has grown from a modest problem into a mammoth one.
According to a recent study in The Analysts Accounting Observer, 90 percent of companies in the Standard & Poors 500-stock index reported non-GAAP results last year, up from 72 percent in 2009.
Regulations still require corporations to report their financial results under accounting rules. But companies often steer investors instead to massaged calculations that produce a better outcome.
But the gulf between reality and make-believe in these companies operations is so wide that it raises critical questions about whether investors truly understand the businesses they own.
Among 380 companies that were in existence both last year and in 2009, the study showed, non-GAAP net income was up 6.6 percent in 2015 compared with the previous year.
Under generally accepted accounting principles, net income at the same 380 companies in 2015 actually declined almost 11 percent from 2014.
Another striking fact: Thirty companies in the study generated losses under accounting rules in 2015 but magically produced profits when they did the math their own way. Most were in the energy sector, which has been devastated by plummeting oil prices, but health care companies and information technology businesses were also in this group.
(Excerpt) Read more at nytimes.com ...
The U.S. Government has been doing this for years.
Must be the same math Ted Cruz uses.
You mean Sarbanes Oxley didn’t fix this?
In a perfect society in which no one owned anything and in which all goods were shared equally, this wouldn’t be a problem ... we wouldn’t even need math then, unless we wanted to count the unicorns.
Bonuses are paid to executives based on profitability when those same executives have control over the books and records. What could possibly go wrong? :-)
Fortunately for those execs I am not on any of their Boards of Directors. They only choose political hacks or other corrupt executives for that task.
Common Core Math 2+2=5.
Must be the same math Ted Cruz uses.
Lol. Was just thinking the same thing :-)
Fantasy VP, fantasy wins... next up, fantasy cabinet in Fantasyland.
Russ Hanneman school of business...
“whether investors truly understand the businesses they own”
Most investors don’t realize that they’ve purchased their stock on the secondary market, the price of which being only loosely correlated to the actual equitable value of the company.
It seems to me that they way some folks talk is that what they think they have is more like the stock of a close corporation.
It’s not. What they’ve got is something with a number that’ll fluctuate with the whims and caprices of public opinion, accurate or not.
So, I guess it depends on the degree, but if the numbers are of 10-20% for a particular company, depending on accounting method, it doesn’t really matter, does it?
The impression is more important than the REALITY.
I’m surprised the auditors sign off on such reports.
Fantasy math has been working for the government for the last eight years, with the aid of the media and Wall St. All of it is phony baloney. A nation that is over $100 TRILLION in unfunded debt is NOT the “richest country in the world.”
Damn. You’re right about that. It matters about as much as a ballot cast in a presidential primary.
Interesting. Don’t mind the obligatory Cruz-bashing in the comments. It’s Silly Season.
Double entry bookkeeping had its advantages
In my high school claas Bookkeeping 101 in 1968:
1. Assets minus liabilities equals profits. (Corporate)
2. Income minus bills and savings equals budgeted income.
Now, come to 2016, and:
3. Tax Revenue minus payee programs equals no profit and borrow from China.
Man-caused climate change models used.
Lol. And it doesn’t seem to bother some people.
This is the behavior by capitalists that results in the people demanding government regulation.
No doubt President Hillary will turn the SEC and DOJ loose on the companies for this type of behavior if they don’t make appropriate donations to her campaign and the Clinton Foundation. President Trump will take a hands off approach and allow corporations and banks to report anything they wish.
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