Current - #201 - #09 - Chapt. #09 – Did these companies really make a profit?

Just now we are finding out that “accounting procedures” may have been used to inflate profits in many large and small firms!
These are “legal” accounting procedures. They may be “misleading” and/or “immoral” but they do not seem to be “illegal”!
You can sell an asset (a part of the company) and reduce your overhead costs by “applying the money you received from this sale” to reduce your overhead costs! Yep! You can show a reduction in the overhead costs; thereby, showing an increase in your profits. In other words, you can show a more “profitable” picture for the year. And, of course, your stock price will move up. It’s all legal!!

So what if you didn’t know this!!

You’re no accountant and you couldn’t read a company’s statement anyhow!
So you bought the stock because the year’s earning and profit picture looked better. You didn’t know that the company didn’t make an increase in profits from its normal business. It just showed an increase!!
Now, they tell you, that “brokers” and “analysts” are just “salesmen” (hucksters). Even if a company’s own “analyst” said to its own company that a certain stock was a “dog”, the company put out a “buy” recommendation on an increase in profits; knowing all along that the increase was an “accounting” trick! Yep! It’s a “legal” trick even if it was “misleading”. You were plain “greedy” to buy the stock. All you were looking at was the increase in business profits! The trading companies and their “analysts” recommendations be “damned”! The fault is “yours”!!

What this has done is to weaken the public’s faith in the “stock markets”, the Mutual Funds, the whole financial structure!! What can you believe? … Who can you believe?
Are your pensions safe? Are the companies you’re invested in “making real money”? Where are “real numbers”?

Not only are there investigations of accounting firms, but “analysts and their companies are being looked into. And how about restating “real earnings” from the companies they audit? What is the “real” price times earnings number? How much of the earnings are gained outside of the companies normal business? Gained by “accounting procedures ….. the sale of assets to outsiders at a competitive price .. the sale of assets to wholly owned or offshore entities at inflated values …. And even to wholly owned subsidiaries that have company employees as investors and whose performance is guaranteed by the main company itself!!

This is not only “tricky” but very “unsettling”. Again, it may all be “legal”, but it sure is immoral, to say the least.

It will be a long time before this whole mess is straightened out, but in the meantime, it might be a good idea to find out what is happening to your investments and to your future “security”.

It doesn’t sound “good”!!