Investing Strategy 101: The Problems With Earnings Reports

This article surveys the little techniques corporate management uses to make it difficult to read earnings reports, and especially to compare one report to its predecessors. Even experienced corporate report readers would benefit from this review of the tricks to watch for.

On top of the usual accounting manipulation that takes place on the bottom line, “companies have a tendency to hit readers with the good news upfront in their releases, even if it has very little correlation with stock price, and bury the bad news deep within financial tables at the bottom of the report,” said Short.

This earnings season, we were surprised to find some big companies failing to mention key metrics high up in their press releases. ConocoPhillips COP, -0.15% is a serial offender in this respect, failing to offer any revenue number in its release, forcing us to search for regulatory filings. That’s after it was told by the SEC that it wasn’t allowed to publish a non-GAAP revenue number that was based on both historical and future performance.