Free Republic
Browse · Search
News/Activism
Topics · Post Article

Skip to comments.

Fantasy Math Is Helping Companies Spin Losses Into Profits
New York Times ^ | 22 April 2016 | GRETCHEN MORGENSON

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.

What’s 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 Analyst’s Accounting Observer, 90 percent of companies in the Standard & Poor’s 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 ...


TOPICS: Business/Economy
KEYWORDS: accounting; corporateprofit; corporatestock; fairtax; financialreports; flattax; gaap; gretchenmorgenson; morgenson; newyork; newyorkcity; newyorkslimes; newyorktimes; taxcuts; taxreform
Navigation: use the links below to view more comments.
first 1-2021-35 next last

1 posted on 05/01/2016 12:18:04 PM PDT by Lorianne
[ Post Reply | Private Reply | View Replies]

To: Lorianne

The U.S. Government has been doing this for years.


2 posted on 05/01/2016 12:20:36 PM PDT by FlingWingFlyer (If SCOTUS is really so fair and unbiased, why is it a campaign issue about who is on it?)
[ Post Reply | Private Reply | To 1 | View Replies]

To: Lorianne

Must be the same math Ted Cruz uses.


3 posted on 05/01/2016 12:23:12 PM PDT by bella1 (We The People...Not We The Party)
[ Post Reply | Private Reply | To 1 | View Replies]

To: Lorianne

You mean Sarbanes Oxley didn’t fix this?

LOL.

5.56mm


4 posted on 05/01/2016 12:24:46 PM PDT by M Kehoe
[ Post Reply | Private Reply | To 1 | View Replies]

To: Lorianne

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.


5 posted on 05/01/2016 12:27:07 PM PDT by ClearCase_guy (Democrats are mean-spirited racists who don't care about our children.)
[ Post Reply | Private Reply | To 1 | View Replies]

To: Lorianne

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.


6 posted on 05/01/2016 12:28:25 PM PDT by cgbg (Epistemology is not a spectator sport.)
[ Post Reply | Private Reply | To 1 | View Replies]

To: Lorianne

Common Core Math 2+2=5.


7 posted on 05/01/2016 12:28:26 PM PDT by goldstategop ((In Memory Of A Dearly Beloved Friend Who Lives In My Heart Forever))
[ Post Reply | Private Reply | To 1 | View Replies]

To: bella1

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.


8 posted on 05/01/2016 12:29:06 PM PDT by Jane Long (Go Trump, go! Make America Safe Again :)
[ Post Reply | Private Reply | To 3 | View Replies]

To: Lorianne

https://www.youtube.com/watch?v=BzAdXyPYKQo

Russ Hanneman school of business...


9 posted on 05/01/2016 12:31:36 PM PDT by Snickering Hound
[ Post Reply | Private Reply | To 1 | View Replies]

To: Lorianne

“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?


10 posted on 05/01/2016 12:36:45 PM PDT by fruser1
[ Post Reply | Private Reply | To 1 | View Replies]

To: Lorianne

The impression is more important than the REALITY.


11 posted on 05/01/2016 12:38:25 PM PDT by A CA Guy (God Bless America, God Bless and keep safe our fighting men and women.)
[ Post Reply | Private Reply | To 1 | View Replies]

To: Lorianne

I’m surprised the auditors sign off on such reports.


12 posted on 05/01/2016 12:40:36 PM PDT by sparklite2 ( "The white man is the Jew of Liberal Fascism." -Jonah Goldberg)
[ Post Reply | Private Reply | To 1 | View Replies]

To: Lorianne

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.”


13 posted on 05/01/2016 12:41:48 PM PDT by txrefugee
[ Post Reply | Private Reply | To 1 | View Replies]

To: fruser1

Damn. You’re right about that. It matters about as much as a ballot cast in a presidential primary.


14 posted on 05/01/2016 12:42:43 PM PDT by sparklite2 ( "The white man is the Jew of Liberal Fascism." -Jonah Goldberg)
[ Post Reply | Private Reply | To 10 | View Replies]

To: expat_panama; Mase; Toddsterpatriot

Interesting. Don’t mind the obligatory Cruz-bashing in the comments. It’s Silly Season.


15 posted on 05/01/2016 12:56:32 PM PDT by 1rudeboy
[ Post Reply | Private Reply | To 1 | View Replies]

To: Lorianne

Double entry bookkeeping had its advantages


16 posted on 05/01/2016 1:17:30 PM PDT by Don Corleone ("Oil the gun..eat the cannoli. Take it to the Mattress.")
[ Post Reply | Private Reply | To 1 | View Replies]

To: Lorianne

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.
(Suzy Homemaker)

Now, come to 2016, and:

3. Tax Revenue minus payee programs equals no profit and borrow from China.
(Barack Obama)


17 posted on 05/01/2016 1:18:42 PM PDT by Terry L Smith
[ Post Reply | Private Reply | To 1 | View Replies]

Man-caused climate change models used.


18 posted on 05/01/2016 1:28:22 PM PDT by USCG SimTech
[ Post Reply | Private Reply | To 8 | View Replies]

To: FlingWingFlyer

Lol. And it doesn’t seem to bother some people.


19 posted on 05/01/2016 1:31:35 PM PDT by dhs12345
[ Post Reply | Private Reply | To 2 | View Replies]

To: Lorianne

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.


20 posted on 05/01/2016 1:33:49 PM PDT by Soul of the South (Tomorrow is gone. Today will be what we make of it.)
[ Post Reply | Private Reply | To 1 | View Replies]


Navigation: use the links below to view more comments.
first 1-2021-35 next last

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.

Free Republic
Browse · Search
News/Activism
Topics · Post Article

FreeRepublic, LLC, PO BOX 9771, FRESNO, CA 93794
FreeRepublic.com is powered by software copyright 2000-2008 John Robinson