5 ms·

There are two main "users" of financial statements: the companies that produce them and the investors/analysts that consume them. The problem is 15-17 years ag

There are two main "users" of financial statements: the companies that produce them and the investors/analysts that consume them. The problem is 15-17 years ago, the income statement got "political" and congress / nasd/finra/ accounting standards boards started inserting accounting lines in the income statement that neither the companies or the analysts wanted. Cost of stock compensation being the primary one. Look, when an investor looks at the numbers they want to dig down to the core operations economics and the health there of to create his valuation. The investor/analyst isn't going to blindly say "oh they have negative GAAP Net Income ergo company value = 0"

malandrew 10y ago
Not entirely true. I used to be an analyst and we would still look at and comment on non-recurring items to understand if they are relevant to the health of the business. In reports, we'd even comment/refer to past non-recurring items. They factor into models if we thought there was a possibility of them re-occurring.
curiouscats 10y ago
I have been an investor for decades. Of course I want stock compensation treated as a cost when companies report earnings. It is especially crazy when companies trumpet their billions spent buying stock at the same time they want to treat stock giveaways as not a cost. You might think just avoid in investing in companies that are so crazy as to do that (in their promoted non-GAAP numbers) because that must be a sign they are not so bright and why rely on them to make wise investing decisions for your company. But you would find yourself ruling out many technology companies. It isn't that they don't know this is wrong, they just realize it is in their executives (CFO, CEO etc.) interests to promote the false earnings because many people will accept it. My blog post from last week http://investing.curiouscatblog.net/2016/04/21/buybacks-giveaways-to-executives-and-non-gaap-earnings/
- jpeg_hero 10y ago
  fully diluted eps?
  - kgwgk 10y ago
    How do you think they help? Imagine a company with 1mn shares trading at $100, with $5mn earnings (ignoring taxes for simpliciy), i.e. $5 per share. Let's say they can reduce cash compensation to employees by $5mn giving instead $10mn in stock (0.1mn new shares). GAAP earnings are now $0 per share. Fully-diluted earnings (excluding stock based compensation) are $9.1 per share.
- shostack 10y ago
  This recent Planet Money episode [1] talked about how everyone thought options were free a few years ago, including former US Secretary of Commerce Barbara Franklin. It is fascinating and a large contributor to the skyrocketing executive pay we see today. [1]http://www.npr.org/2016/02/18/467253394/why-did-americas-ceos-get-such-a-big-raise http://www.npr.org/2016/02/18/467253394/why-did-americas-ceo...

malandrew 10y ago

Not entirely true. I used to be an analyst and we would still look at and comment on non-recurring items to understand if they are relevant to the health of the business. In reports, we'd even comment/refer to past non-recurring items. They factor into models if we thought there was a possibility of them re-occurring.

curiouscats 10y ago

I have been an investor for decades. Of course I want stock compensation treated as a cost when companies report earnings. It is especially crazy when companies trumpet their billions spent buying stock at the same time they want to treat stock giveaways as not a cost. You might think just avoid in investing in companies that are so crazy as to do that (in their promoted non-GAAP numbers) because that must be a sign they are not so bright and why rely on them to make wise investing decisions for your company. But you would find yourself ruling out many technology companies. It isn't that they don't know this is wrong, they just realize it is in their executives (CFO, CEO etc.) interests to promote the false earnings because many people will accept it. My blog post from last week http://investing.curiouscatblog.net/2016/04/21/buybacks-giveaways-to-executives-and-non-gaap-earnings/

jpeg_hero 10y ago
fully diluted eps?
- kgwgk 10y ago
  How do you think they help? Imagine a company with 1mn shares trading at $100, with $5mn earnings (ignoring taxes for simpliciy), i.e. $5 per share. Let's say they can reduce cash compensation to employees by $5mn giving instead $10mn in stock (0.1mn new shares). GAAP earnings are now $0 per share. Fully-diluted earnings (excluding stock based compensation) are $9.1 per share.
shostack 10y ago
This recent Planet Money episode [1] talked about how everyone thought options were free a few years ago, including former US Secretary of Commerce Barbara Franklin. It is fascinating and a large contributor to the skyrocketing executive pay we see today. [1]http://www.npr.org/2016/02/18/467253394/why-did-americas-ceos-get-such-a-big-raise http://www.npr.org/2016/02/18/467253394/why-did-americas-ceo...