In the long run, investment returns are all about earnings and dividends. Dividends of course are real. On the other hand, given the remarkably wide parameters of Generally Accepted Accounting Principles (GAAP), earnings have become whatever management wants them to be. When earnings can’t be managed to meet management’s projections, just change the terminology. Move the focus from reported earnings to operating earnings so that the write-offs of all those earlier foolish capital expenditures and unwise mergers are ignored. If that doesn’t do the trick, report pro-forma earnings that exclude all those “bad” experiences that are said to be nonrecurring and include all those “good” revenues, often non-recurring and undisclosed. And when operating earnings and pro-forma earnings aren’t good enough to meet the market’s demands, report fraudulent earnings. Just cook the books! — Hewitt Heiserman, It’s Earnings That Count

As long as investors — including supposedly sophisticated ins...

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