
S&P alters its core earning methodology
Excluded from this definition are impairment of goodwill, gains and losses from assets sales, pension gains, unrealised gains or losses from hedging activities, merger and acquisition related fees and litigation settlements
“A number of recent high-profile bankruptcies have renewed investors’ concerns about the reliability of corporate reporting,” said David Blitzer, Standard & Poor’s chief investment officer. “Once there are more generally accepted definitions, it will be much easier for analysts and investors to evaluate varying investment decisions.”
Leo O’Neill, S&P president, said the new analysis was widely supported in the analyst community. But one analyst questioned how popular the new methodology would prove with managers at US corporations. Sales/leasebacks, for example, have often been a way for airlines to boost earnings in depressed cycles and therefore manage the volatility of the industry. He was also concerned how analysts will view profitable hedging strategies that, if not implemented to boost revenues, may improve earnings all the same.
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