|
S&P seeks earnings clarity
|
 |
November 7, 2001: 11:18 a.m. ET
Financial information company asks for definition of 'operating earnings.'
|
NEW YORK (CNNmoney) - In one of the first attempts to clarify increasingly confusing corporate earnings reports, Standard & Poor's Wednesday called for a uniform reporting system including a standard definition of "operating earnings" - a term that companies often use but one that has no generally accepted definition.
While Standard & Poor's, a unit of McGraw-Hill (MHP: Research, Estimates), does not have the power to force any company to change the way it reports earnings, it sent a letter to top Wall Street executives Wednesday recommending how operating earnings should be defined.
The letter states that corporate earnings reports are "becoming harder to understand, more difficult to compare across companies and less useful to analysts and investors."
|  | |
 |
|
|
| |
CNNfn's Amanda Lang explains proposed earnings reporting system.
| |
|
"The problem is that instead of having one way to calculate corporate earnings that everybody understands, we have two or three methods." David Blitzer, Standard & Poor's managing director and chief investment strategist, told CNNfn Wednesday. "And the one that most people use, there is virtually no agreement at all about what it means."
In the letter, S&P suggested definitions for the terms "reported earnings," "operating earnings," and "pro forma earnings." By standardizing the data format, the numbers can be more accurately compared across the board, according to the letter.
Click here for CNNmoney's earnings scorecard
Standard & Poor's, which compiles the widely watched S&P 500 index of 500 U.S. stocks, is also one of the nation's leading bond-rating agencies.
| |
|
|
| |
|
|
| |
"It's just a lack of consistency. Companies change the definition quarter to quarter, whichever looks best - that's not a reasonable way to do business."
|
|
| |
|
|
| |
|
|
| |
|
|
| |
David Blitzer
S&P managing director and chief investment strategist |
|
S&P suggested that companies include in their earnings reports restructuring charges, asset write-downs from continuing operations, stock-option expenses, and research and development information purchased from other companies because these are normal parts of a company's operations, the paper reported.
It did propose that goodwill charges - the additional cost of buying a company at a premium - as well as litigation expenses, gains and losses from asset sales, and acquisition and merger-related expenses be excluded.
Besides compiling the S&P 500 index, Standard & Poor's tracks the combined earnings of these companies, a measure which is closely watched to determine the price-to-earnings ratio of the index. If the way companies calculate their earnings is changed, as proposed by the letter, it could alter perceptions of stock-market valuations.
"It's just a lack of consistency," Blitzer told CNNfn. "Companies change the definition quarter to quarter, whichever looks best - that's not a reasonable way to do business." 
|
|
|
|
|
|
|
