Saturday, June 29, 2002

Ah, it's called "earnings management." Each quarter, analysts at securities firms forecast the profit per share of the companies they cover. Companies whose profit falls short of the consensus estimate can be severely punished, their stocks falling 10 percent or more in a day. So some companies do whatever they have to to make sure they do not miss that estimate. Instead of first figuring out their sales and subtracting expenses to calculate the profit, they work backward. They start with the profit that investors are expecting and manipulate their sales and expenses to make sure the numbers come out right. And the result is... The difference between earnings management and the multibillion-dollar gimmicks acknowledged by WorldCom and Xerox this week is like the difference between speeding and murder. But the slope from earnings management to earnings manipulation to fraud is a slippery one, and during the boom the incentives to cheat became ever more compelling. 11:24:46 AM

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