Valeant Shows the Perils of Fantasy Numbers
"...The tide of companies making up their own earnings calculations is rising, said Jack Ciesielski, publisher of The Analyst’s Accounting Observer. In a recent report, he noted that 334 companies in the Standard & Poor’s 500-stock index reported non-GAAP earnings last year, up from 232 such companies in 2009. The dollar amount of cost adjustments made to those companies’ profits totaled $132 billion last year, more than double the amount in 2009.
“There is a lot more of this going on,” Mr. Ciesielski said in an interview. “The companies are really pushing it.”
This creativity is common practice in the pharmaceutical industry, so Valeant is certainly not atypical. But the difference between the company’s real earnings and its adjusted numbers is far greater than it is for its large competitors, making Valeant a prime example of this problem...
...Consider a 2002 study on non-GAAP numbers by Mark T. Bradshaw, an associate professor of accounting at Boston College, and Richard G. Sloan, a professor of accounting at the University of California, Berkeley. The fantasy numbers had “displaced GAAP earnings as a primary determinant of stock prices,” its authors wrote."..."
http://www.nytimes.com/2015/11/01/b...ils-of-fantasy-numbers.html?ref=business&_r=0
"...The tide of companies making up their own earnings calculations is rising, said Jack Ciesielski, publisher of The Analyst’s Accounting Observer. In a recent report, he noted that 334 companies in the Standard & Poor’s 500-stock index reported non-GAAP earnings last year, up from 232 such companies in 2009. The dollar amount of cost adjustments made to those companies’ profits totaled $132 billion last year, more than double the amount in 2009.
“There is a lot more of this going on,” Mr. Ciesielski said in an interview. “The companies are really pushing it.”
This creativity is common practice in the pharmaceutical industry, so Valeant is certainly not atypical. But the difference between the company’s real earnings and its adjusted numbers is far greater than it is for its large competitors, making Valeant a prime example of this problem...
...Consider a 2002 study on non-GAAP numbers by Mark T. Bradshaw, an associate professor of accounting at Boston College, and Richard G. Sloan, a professor of accounting at the University of California, Berkeley. The fantasy numbers had “displaced GAAP earnings as a primary determinant of stock prices,” its authors wrote."..."
http://www.nytimes.com/2015/11/01/b...ils-of-fantasy-numbers.html?ref=business&_r=0
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