There Are Numerous Distortions in Accounting Data
Our methodology adjusts for material accounting distortions inherent in financial statements and traditional metrics. Financial statements, using GAAP, were developed more for tax reporting purposes than for financial investment purposes. It’s clear to the financial community that after tax operating cash flows, not earnings, is what management can actually use for investing, paying dividends, and re-purchasing shares. Companies report EBITDA and pro-forma financial statements, both non-GAAP compliant, to help investors interpret their financial statements. By reporting pro-forma statements and EBITDA, management is tacitly implying “do not use earnings to value our company, EBITDA is a much better measure of our value.” But that does not go far enough.
Some of the numerous accounting distortions include: ROE being distorted by leverage and share buybacks, accumulated depreciation masking the original investment, inflation distorting real returns, and traditional performance metrics not accounting for assets life, to name a few. Read more and watch our videos to find out more.