STREET DOGS: It’s earnings that count … whichever way you look at it
And when operating earnings and pro-forma earnings aren’t good enough to meet the market’s demands … just cook the books
It’s earnings that count … one need only compare total stock market returns over the past 130 years with the returns created by corporate earnings growth and dividend yields to see the truth of that statement. While in the short run stock prices may depart vastly from these investment fundamentals, in the long run investment returns are all about earnings and dividends. Dividends are real. Earnings have become whatever management wants them to be. We live in a world of managed earnings. While it is corporate executives who do the managing, they do so with at least the tacit approval of directors and auditors, and with the endorsement of institutional investors with short-term horizons, rather than in response to the demands of long-term investors. Corporate strategy and financial accounting alike focus on meeting the earnings expectations of the Street. The accepted idea is to smooth reported earnings, often by aiding security analysts to establish earnings expectations and then rep...
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