Mind the GAAP Gap, Even for Blue Chip Stocks [WSJ]
Is everyone worried about non-GAAP metrics enough? Matt Levine noted last week that the coverage of non-GAAP reporting is mostly "people worrying […] that people aren't worrying enough about it." I'd say that's definitely the case with this piece that worries about the non-GAAP accounting of the 30 companies that make up the Dow Jones Industrial Average.
FactSet notes that 20 of the 30 Dow members last year issued supplemental earnings numbers along with their GAAP results. Eighteen of the 20 said their non-GAAP per-share earnings were higher than their GAAP figures.
In 2014, 19 companies in the Dow put out additional earnings that didn’t fall under generally accepted accounting principles. Of those, 15 reported non-GAAP earnings above the GAAP numbers.
For all the companies issuing non-GAAP EPS, the metric was on average 31% higher last year than GAAP EPS, versus a 12% improvement in 2014, says FactSet. Because of that, the contraction in 2015 adjusted earnings was 4.8%, while the contraction in unadjusted earnings was 12%.
Two examples given are Merck and General Electric whose "non-GAAP EPS was more than double the unadjusted figure." And I guess that is worrying but it's also a reminder that we — and everyone else — know what the GAAP numbers are! I may have said this before, but just because there's a bunch of non-GAAP stuff floating around doesn't mean that analysts and investors can't look at GAAP numbers if they want to.
And, since we're on the subject, what is GAAP anyway? Levine says it's "an imperfect man-made approximation of those companies' underlying economic reality" which means GAAP is only GAAP because some people in Connecticut say it's GAAP. Those people make bad choices! All the time! It seems that investors and analysts and observers all have gotten used to the idea that some companies like to play around with GAAP to make their business look slightly better. Sometimes people say, "Oh, excluding that is understandable," and other times they're all like, "WHOA, what is that? You know we can see what you're doing, right?" I guess that still makes some people uncomfortable. Anyway, I'm sure there are other things we should be more worried about than how much non-recurring one-time charges Merck had this year. I just can't think of them at the moment.
Getting a job
at Deloitte is hard
Just a little reminder:
It’s hard to get a job at Deloitte. The Big Four professional services firm gets more than 500,0000 applications every year for experienced hires, and it only takes on 4% of those.
We've poked fun at Deloitte in the past for how exclusive it claims to be because, if for no other reason, lots of other places are exclusive too. I'd bet you $1 that if you dug up the numbers on any Big 4 firm, you'd find that they hire less than 10% of the experienced hires who apply. But more to the practical point — of course Deloitte takes a small number of applicants. If they were taking 10% or 20%, their headcount would go up too much, too fast. Then the firm would either start slashing salaries and/or have huge layoffs every year. It would be mayhem and it would be marvelous.
To reiterate: Deloitte's not that exclusive.
In other news:
- Toshiba finds more accounting errors, promises improvement
- SunEdison Delays Earnings Citing Weak Accounting Controls
- Europe Lawmakers Grill Multinationals on Tax Structures
- Congressman Proposes Resolution to Recognize Magic as Rare and Valuable
- Suicidal deer.