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Why Most Companies "Beat" Earnings Expectations - Explained In One Chart
When it comes to corporate earnings announcements, some two-thirds of the time companies beat consensus expectations. This happens both during good quarters and bad (such as this one). How is this possible? The following chart form Deutsche Bank explains it once and for all.
The reason the average EPS beat in the past 4 years has been about 3.3% is because the average EPS cut just prior to reporting has been... 4.0%
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The accounting system
I buy a new tractor: I can claim it is a depreciating asset, a liability or part of owner equity and if its an asset its worth whatever I want it to be. Nuff said.
I call it Ole Green- my own brand and since Im losing my shirt on the deal and the other farmers hate my guts because my tractor is newer that theirs I going to have to do a one time line item impairment of goodwill charge on my ole green brand, And, defer my taxes at 9% for a few years.
You mind signing off on this Arthur, I got a new Beamer waiting around back with the keys and a form 4 in the seat..
What a fucking joke. Toshiba drivel all of it.
Not to question what you are saying, but can you provide a little more detail and maybe a reference under the applicable IFRS or US GAAP?
The main issue with accounting is that people think it deals only with historical or objectively measurable data. Then they think that the resulting information is reliable. Accounting includes a lot of estimation (such as percentage of completion in Toshiba's case) where measurement is very difficult and judgment and uncertainty are rife.
Does not matter, I will just buy enough shares back that I watered your ass down with to beat the corn crop EPS by exactly two cents. What a bumper crop YEAR.
He can't because he's bullshitting.
Im the one bullshitting? LOL
exactly. the main issue with accounting is that people think IFRS or US GAAP are indeed forms of accounting that produce reliable information
there is actually no need for forms of accounting that have to make estimations for the future. if you don't care about "looking good", that is, or paying less taxes, or having your stock soar
People always seem to be looking for the "perfect" system. There isn't one. The more current you want your information, the less reliable it is. The more reliable you want your information, the less relevant it is. Those trade-offs are non-negotiable.
At my company, we prefer to have information as current as possible (which involves a lot of estimation relating to our long-term construction contracts) so we can get a sense as quickly as possible where we are heading. The result is that our financials include "educated guesses" each month. We can't wait 18 months for our large contracts to be over to find out how we did on them, so we do our best to approximate progress based on dozens of activity points. It's not a perfect system...
'Nothing runs like a Deere'...
I'm going to be 10% more productive next quarter, but I'll be working 11% more hours.
How does that sound boss? Oh yeah, it'll be time-and-a-half too. Capiche?
They cut by 4% ... and then only "beat" by 3%. So they are going down by 1%.
It's math. Therefore nobody will get it.
Sorry, I was too busy watching Jerry Springer to read your comment. What were we talking .................Squirrel.
Mark to "market"..... that is all.
that died in 09. mark to "whatever the fuck you want it to" is more like it.
Hence the quoatation marks.
Mark to FASB-157 steak sauce.
Apparently not everyone knows how to play this game.
For the most recent 13 weeks of earnings data available for the VL Index, year over year profit growth per share is up only 4.8%. These earnings are from continuing operations.
Worst 13 weeks since the recession.
If US GDP is going to be negative by say 3%, they lower inflation by 4% to get a positive GDP in the mighty economic engine of the free world.
Life gets so much better if you can be creative with numbers.
... the USSA consistently "beat" expectations like the "great wreckovery" ... so, USSA companies "beat" expectations as well ... why not? ... it's all smoke and mirrors ...
It is a bit silly, no doubt.
But so far, this will be a blowout quarter relative to expectations. Almost all of the big names beat today, and some were huge beats.
It's all an accounting fiction, I'm sure. But that's baked into the expectations anyway. Doesn't say anything about objective corporate health, but it's better on a relative basis.
Here's a huge beat....despite GM revenue down $ 1.4 Billion !
http://www.wsj.com/articles/gm-posts-sharply-higher-profit-1437651330
I drive by several car dealerships here in southern MS, and I can't help but notice that the dealerships have cars stacked, packed, and parked all the way to the road's edge, almost posing a hazard to other traffic in one of these.
Channel stuffing for sure.
I'm ignorant. What is an Earnings Per Share "Cut"? Does that mean the company cut their outlook for EPS prior to the release of the actual EPS?
folks--there are many ways to fudge books.
Overhead absorption for example. If you build inventories you end up capitalizing overhead costs into that built inventory and that inflates profits. Ain't nobody talking about that.
Then accounting reserves which banks play with frequently.
But as an old timer, when we had a good quarter we build reserves so we had something to take back in a bad quarter. Or in a good quarter some inventory was left off the detail and the roll up of numbers. Then by doing that taxes were reduced.
Now there is not much to take back since everything has been pushed to the limits.
lot's of ways to play games including FAS 107 where banks can value assets at whatever value they assign.
I don't need no stinking chart. Here's the simple reason companies always meet others expectations: Liars figure, figures lie. No chart & very simple.
The weather is always sunny! Here in 1970 USSR we have full employment. In USSA we ehave a perpetual Stock Market that only goes up. EVERYTHING IS AWESOME. Never mind that 30% of American don't have full time jobs...AWESOME I TELL YOU
no worries. a dxy haircut will be the harbinger of record earnings and an inconsequential rate hike. good times are here again. buy a house. buy a car. buy stocks. btfd!
Another reminder of why the tax code will Never be tossed in favor of something simple and elegant.