earnings management

Smooth Earnings and Accounting

Hey Friends,

Perhaps you’ve read some of the research on the application of accounting rules to “smooth” earnings. What is meant by smoothing earnings? Here’s a good description:

“Income smoothing is the shifting of revenue and expenses among different reporting periods in order to present the false impression that a business has steady earnings. Management typically engages in income smoothing to increase earnings in periods that would otherwise have unusually low earnings. The actions taken to engage in income smoothing are not always illegal; in some cases, the leeway allowed in the accounting standards allows management to defer or accelerate certain items.” […]

Managing Earnings Has Endangered our Future

Hey friends. When I did my doctoral work, reading accounting (and finance) research studies was a constant assignment. Numerous empirical studies found evidence that earnings management is commonplace. Managing earnings may seem reasonable since research also shows that earnings drive stock prices. But is it really wise? […]

August 25th, 2019|Balance Sheet, earnings management|2 Comments

Earnings That Count

Recently I became acquainted online with Hewitt Heiserman Jr. In a gentleman’s manner, he wrote me a very gracious and encouraging note concerning my book, “Choose Stocks Wisely.”

Hewitt is very accomplished and distinguished in the world of investing, and is often referenced. He has been quoted in TheStreet.com, The Wall Street Journal, BusinessWeek, CBS MarketWatch, Business 2.0, Better Investing, The Motley Fool, Complete Growth Investor, Barron’s, and the Haverford Trust Company Adviser. […]

Like Rodney Dangerfield: The Balance Sheet Gets No Respect

Last week, I shared a link to Jake Taylor’s interview of me with regard to “Choose Stocks Wisely.” During that interview, Jake asked me about my view as to “why” the balance sheet is so disregarded in the market relative to the attention given to earnings. I’m going to address this question again today in a bit more detail. […]

Whatever Happened to Building “Wealth?”

If you’ve owned stocks before and observed stock price behavior, you’ve realized how sensitive stock prices are to each successive quarterly earnings report. If the earnings report pleases the investment community, the stock usually reacts favorably and does so to the degree of momentary pleasure derived. The same can be said about the negative impact to stock prices when the earnings report disappoints market participants. […]