– The Corporate Earnings Fiction in Q3:
The Biggest Sinners in the Dow.
All 30 companies in the Dow Jones Industrial Average have now reported earnings for the third quarter. As required, they reported these earnings under Generally Accepted Accounting Principles (GAAP). These standardized accounting rules are supposed to allow investors to compare the results of different companies. But that’s too harsh a fate for many of our corporate heroes, and so they proffer their own and much more pleasing accounting strategies – as expressed in “adjusted” earnings and “adjusted” earnings per share (EPS).
Of the 30 companies in the DJIA, 14 reported “adjusted” or “non-GAAP” earnings in Q3 that were significantly higher than their GAAP earnings. Total “adjusted” EPS of these 14 Dow components exceeded their total EPS under GAAP by 26%! Nice work!
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