Chapter 5 Core Earnings and Net Worth Adjustments: Making the Numbers Real
Before embarking on a discussion of fundamental analysis (Chapters 6 and 7) a distinction must be made—between what is reported on financial statements and what is real. In fact, if fundamental analysis is to be reliable and accurate, making core earnings adjustments is a necessary first step.
When Standard & Poor’s Corporation (S&P) developed its concept of “core earnings,” the estimate was that the S&P 500 corporations saw earnings overstated by about 30% during the first year the adjustment was calculated.11 The core earnings (or “true economic profit”) of a company may be significantly different than the earnings a company reports under the GAAP (Generally Accepted ...
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