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Bubble Profits



May 27, 2009 – Comments (5)

Oh goodie, more cheating on profits.

5 Comments – Post Your Own

#1) On May 27, 2009 at 9:30 AM, portefeuille (98.84) wrote:

the bloomberg article

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#2) On May 27, 2009 at 9:50 AM, portefeuille (98.84) wrote:

Oh goodie, more cheating on profits.

I would not necessarily call that cheating.

"There’s definitely going to be some marks that were taken that were too extreme," ...

That is what quite a few people have said for a long time. Maybe they were not entirely wrong on that. All those mark-to-market mark-downs cheerleaders now have to live with the mark-ups ...

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#3) On May 27, 2009 at 10:47 AM, portefeuille (98.84) wrote:

a motley fool article on this:

More Phantom Profits for Banks?

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#4) On May 27, 2009 at 12:19 PM, wolfhounds (52.28) wrote:

Similar accounting rules exist for virtually any type of "purchase" of assets or companies. Those most of us are familiar with are write downs of inventory to FMV, write-off of R&D costs, and the most misunderstood - write off of goodwill.

When a company is acquired, the acquirer assigns values to each asset class. Accounting rules, unlike tax rules, favor these write downs because they are treated as one time items (even for serial acquirers) which are not reported in operating earnings. However, over the periods that these assets would have been amortized or depreciated, or included in cost of sales, earnings are artificially increased even though the asset is still utilized. Accounting rules allow for these value adjustments which are at the discretion of the acquirer within the wide lattitude of those rules. 

Write offs are always a warning to me to compare FCF to reported earnings. 

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