Earnings Season Means Cluttered Mailboxes
Investors are living through earnings season right now. If you are an active trader it is a significant time. If not, then all it means is that your mailbox gets cluttered with weighty financial statements.
I am a CPA and trained auditor and cannot make sense of many of them. When they arrive and after I get around to opening them, I glance at the sales, profits, earnings per share, net worth and cash flow. Since I am a little curious, I also look at the details of the year’s changes in the other comprehensive income. And then I flip through the rest of the book and find pages and pages of notes to financial statements. In GE’s case it is 59 pages of very small font notes. For IBM it is 63 pages. I could go on with many more examples, but I think these two make my point. There is also a myriad of additional verbiage, data, charts, discussions and analyses. There is no way I am going to read these “books.”
I got to thinking about who actually reads them. Then I got to think about their relevance since the reports are sent out three or so months after the year ended. I don’t believe the average investor reads these statements to make their investment decision.
So, are the statements necessary? I suggest they are because of the independent audit and wealth of information in one place about the company. The SEC, stock analysts, investment managers, mutual funds and public pensions acquiring shares, rating agencies, lenders, and key management and company directors need to study them and understand them. Those who should and don’t, in my opinion, are being negligent and remiss in their responsibilities and are stealing the payments they get to really understand and interpret them.
However, as to relevance for the individual investor – none!
I would appreciate any comments, particularly opposing opinions.
Ed Mendlowitz, CPA
Partner, WithumSmith+Brown