The Phaserl


The Western Banking System, China & The Future — Catherine Austin Fitts

from GoldSwitzerland:

German financial journalist Lars Schall talked with Catherine Austin Fitts about: the equity markets in Europe, the U.S. and China; the risk connected to an interest rate hike by the U.S. Federal Reserve; the frictions within the current global order and economy; and the “phenomenal successful“ presidency of Obama.

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1 comment to The Western Banking System, China & The Future — Catherine Austin Fitts

  • rich

    Valeant Shows the Perils of Fantasy Numbers

    Let’s start with the perils of relying on earnings forecasts and stock valuations based on fantasy rather than reality. Such a reliance may have lulled some recent investors into believing they were paying a small premium to own Valeant shares when in actuality it was costing them the moon. (The stock is still a winner for those who bought shares before the autumn of 2013.)

    Valeant is among a growing number of companies that regularly present two types of financial results: those that adhere to generally accepted accounting principles, and those that help executives put the best spin on their operations.

    In accounting parlance, such adjusted figures — which exclude certain costs from calculations of a company’s earnings — are known as pro forma or non-GAAP numbers. But let’s call them what they really are: a false construct.

    The tide of companies making up their own earnings calculations is rising, said Jack Ciesielski, publisher of The Analyst’s Accounting Observer. In a recent report, he noted that 334 companies in the Standard & Poor’s 500-stock index reported non-GAAP earnings last year, up from 232 such companies in 2009. The dollar amount of cost adjustments made to those companies’ profits totaled $132 billion last year, more than double the amount in 2009.

    “There is a lot more of this going on,” Mr. Ciesielski said in an interview. “The companies are really pushing it.”

    Consider a 2002 study on non-GAAP numbers by Mark T. Bradshaw, an associate professor of accounting at Boston College, and Richard G. Sloan, a professor of accounting at the University of California, Berkeley. The fantasy numbers had “displaced GAAP earnings as a primary determinant of stock prices,” its authors wrote.

    In an interview, Mr. Sloan said he was concerned about the proliferation of companies reporting non-GAAP figures and the challenges that posed to investors.

    “I can see the advantages of letting a company with a good management team do its own voluntary disclosure to help investors understand over and above what’s in the GAAP filings,” Mr. Sloan said. “But what goes along with that is companies that use their own numbers to put them in a better light and to mislead investors.”

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