wdhalgren

Why Do CNBC and Bloomberg Report Operating Earnings?

Accounting subterfuge is one of the many ways that Wall St and their facilitators have conned the general public. PE Ratio is the one valuation metric that the general public pays attention to. Everyone knows, PE ratio of 15 is about right, higher is expensive, lower is cheap. So, the financial establishment gives us what we want, by massaging the numbers to get PE ratios down to that "cheap" threshold, or as close as possible. Data providers like the ones you mention (as well as several other prominent ones) are part of the game, using inflated "Non-GAAP" earnings numbers to manage the PE ratios for public consumption.

With a toothless FASB and SEC guarding the henhouse, companies routinely misrepresent their earnings by downplaying "one-time" charges that occur every quarter and are routine costs of their business model. As soon as a one time charge is announced, it is immediately disregarded by sell-side analysts as irrelevant to the company's valuation. Similarly, employee stock option expenses are ignored, because they're non-cash. If a company makes an acquisition, they throw past and future expenses into one "big bath" quarterly writeoff, which is conveniently and immediately forgotten by all concerned. Tech/biotech companies often write off 90% or more of an acquisition price as "Acquired In Process R&D", thus freeing up future revenues from those pesky amortization expenses.

There's nothing new about accounting shenanigans, but the scope of their occurrence is increasing and very few commentators tell the general public that it even occurs. As the general public has gotten more involved in stocks over the last few decades, the financial industry has become very adept at putting on a good face without overtly breaking the rules, with the tacit approval of regulators and the financial media of course. Wouldn't want the masses to lose confidence in the market, eh? The old maxim about a fool and his money will always be true.