Change takes time. We cannot expect corporate executives, ac-
counting firms, regulatory agencies, and stock exchanges to change
overnight, even when the need for reform in reporting is so incon-
sistent and unreliable. So, while investors wait for the slow wheels
of reform to turn and ultimately to improve reporting conditions, we
have to make our own core earnings adjustments. We must contin-
ue to accept audited statements dubiously; to trust corporate officers
with a little more suspicion than in the past; and to depend on stock
exchanges and regulators to monitor activities among the individu-
als working at high levels in public listed companies. We also need
to struggle with inconsistency in design and formatting of annual
reports and corporate Web sites.
These inconveniences are worth the trouble, however, if they
provide a higher level of information as a result. The more valuable
intelligence we gather about listed companies, the easier it becomes
to get to the real “core” of revenues and earnings—and to deter-
mine how to pick stocks wisely to create consistent profits.
1. SAS 78, AICPAs Auditing Standards Board (ASB).
2. Mergent’s Dividend Achievers, Summer 2003 Edition.
3. Ibid.
4. A study, conducted by the author, of reported earnings for
these 14 companies as of latest reported results through fis-
cal 2002, revealed a consistently low level of core earnings ad-
justments. As a percentage of reported earnings, core earnings
ranged from 77% (for Charter One and Washington Mutu-
al) to 86% (for Paychex and Republic Bancorp). While this
is an isolated study of only a limited number of instances,
the results support the theory that low core earnings adjust-
ments are typical in corporations with low fundamental
volatility—that is, manifested by way of consistent growth
in dividends paid. (Note: Annual reports could not be loaded
for Chittenden, TCF, or Medtronic; and Sysco’s Web site did
not provide annual report information. The remaining 10
corporations’ Web sites were included in the study.)
5. Mergent’s, Op. Cit.
6. Ibid.
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