[10/01/17 NEW] Earnings-Based Security Analysis No Longer Relevant?

Conventional earnings-based security analysis has lost much of its usefulness according to Feng Gu and Baruch Lev, who have published their findings on the topic in a recent issue of the Financial Analysts Journal. Feng Gu, professor of accounting at the School of Management, State University of New York, and Baruch Lev, professor of accounting and finance at the…

[09/10/17] Should You Read the Auditor’s Report?

I bet you don’t. This is the page in front of the income statement and balance sheet in the annual financial reports of companies, titled Report of Independent Registered Public Accounting Firm, which we all skip. And for good reasons. It contains a standard, bland statement full of hedges and caveats (“… internal controls over…

[08/12/17] If a Company Makes a Big Acquisition, Run for the Hills

Teva, the world largest generic drug company lost since the beginning of August 43% of its value. “Cheerful” news for all Teva’s shareholders heading for the August vacation. A distressing second quarter 2017 report and clouds on the horizon (increasing generic competition and price pressure in the U.S., revenue declines and patent challenges to its…

[07/24/17] On Fog, Bog and Slog – Don’t Waste Time On Reading Financial Reports

If you had ever thumbed through a corporate financial report—those quarterly and annual tomes which clog your mailbox or computer memory—you must have wondered about the numerous pictures of smiling people in these reports:  Isn’t anybody there taking business seriously? But pictures aside, there are lots of numbers and particularly words in these reports. What…

[07/06/17] SEC Thinks Investors Are Patsies

  (I am back from a European Lecture tour. Particularly gratifying was the launch of the Spanish translation of my recent book, The End of Accounting… The Chinese, Japanese, and Korean translations are on their way.) And now to the blog: “American Airlines Group removed certain ‘descriptive language’ from its financials at the behest of…

[5/22/17] The Disappearing Public Company

Is it a plague or a pandemic afflicting American stock exchanges, or something else decimates public companies? What are the reasons for the 50% drop in the number of public companies traded on U.S. exchanges? And, most importantly, should we worry about that? Answers below, but first several salient facts (courtesy Kathleen Kahle and Rene…

Should You Buy Amazon Shares Now?

The continuous rise in Amazon’s share price (see below from Yahoo!) raises in many investors’ minds the question: Should I buy Amazon now, or is it too late? Is there still room for growth of share price, or are all the growth expectations of Amazon “baked” already in its elevated share price? Traditional valuation indicators…

Forget the Consensus Estimate: Quarterly Earnings Don’t Matter Much Anymore

On April 18, 2017, the Wall Street Journal reported that IBM’s first quarter EPS came at $2.38 against analysts’ consensus of $2.35. A three penny consensus beat which should have exhilarated investors. Alas, the Journal reported: “IBM shares fell 3.9% in after-hours trading.” How can this be? Don’t consensus meets (hitting the analysts’ estimates) and…

Surprise: Investors Like Non-GAAP Earnings

By  Feng Gu and Baruch Lev Another earnings season is over, and the controversy about non-GAAP earnings—those alternative earnings numbers disclosed by companies—rages on. “Wishful thinking! Kool-Aid! Outright deception!” say the detractors. “Should have been banned by the SEC long ago!” “Not so quick,” counter the supporters: GAAP earnings—those statutory performance measures calculated according to…

FASB Graded and The Grade Is Ugly

Who evaluates the FASB’s performance?  The performance of business enterprises and investment managers is closely monitored by investors, often on a quarterly basis. Such close scrutiny significantly enhances the performance of these enterprises by keeping managers and directors on their toes, and triggering needed changes (CEO turnover, board changes) by takeovers or hedge fund interventions….

Bungling the Oscars Isn’t the Worst of Accountants’ Mishaps

Everyone knows by now that the Oscars’ worst snafu ever was caused by PricewaterhouseCoopers’ partner Brian Cullinan handing the wrong envelop to clueless Warren Beatty. Sad. The only attempt of accountants to be hip and glamorous came crashing down when the LaLa Land winner announcement was found out, albeit embarrassingly late, to be a mistake….