Study: 1 in 4 Companies Tweak Earnings Statements

Wednesday, 10 Oct 2012 10:33 AM

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Some 20 percent of all publicly traded companies tweak their numbers in some shape or form during earnings season and within the law, a new study finds.

An anonymous survey of CFOs conducted by Emory and Duke University professors last year finds that at least 20 percent of companies “manage earnings to misrepresent economic performance, and for such firms 10 percent of [earnings per share] is typically managed.”

Of the 20 percent of companies tweaking earnings to hit targets, 40 percent did so to the downside to make future earnings look even better.

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Plus, it’s all legal.

“It does cause you to pause a little bit and think how should an investor interpret earnings numbers when they hear those announcements,” Duke finance professor John Graham, one of the report’s authors, told Yahoo.

Instead of worrying about how accurate an earnings report appears, investors should look at the companies with a longer-term view, Graham added.

U.S. earnings season is now under way and third-quarter results for Standard & Poor’s 500 Index companies should decline 1.2 percent, according to S&P Capital IQ.

Such a decline would be the worst since the third quarter of 2009.

“Companies are coming forward and saying they’re really not finding any growth opportunities in Europe, and where they were able to find growth opportunities, in China, that’s slowing,” said Christine Short, senior manager at S&P Capital IQ, according to CNNMoney.

Uncertainty has many market observers on edge.

“The tone of the market still feels greatly uncertain as we head into earnings season in the United States, and indeed the market is now focusing its attention that way as it seeks out bad news wherever it can find it,” said Brad Bechtel, managing director at Faros Trading in Stamford, Conn., according to Reuters.

Editor's Note: The Final Turning Predicted for America. See Proof.

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