This report provides case studies for exactly how we perform the detailed Core Earnings to Net Income Reconciliation for the following companies:

  • General Motors (GM)
  • Fortive (FTV)
  • Newell Brands (NWL)
  • Exelixis (EXEL)
  • ExpresSpa Group (XSPA)
  • Navidea (NAVB)
  • Cesca Therapeutics (THMO)

These case studies show the original source data used to perform all of our calculations and adjustments. They allow clients to audit our work. We provide original values and locations in the filings for all the data.

Figure 1 shows the detailed reconciliation for Cesca Therapeutics (THMO). The other case studies are in this excel file:

Download the Case Studies

GAAP earnings don’t tell the whole story of a company’s profits. They are based on accounting rules originally designed for debt investors, not equity investors, and are often manipulated by companies to manage earnings.

Core Earnings[1] measure the normalized operating profitability of a business. Accordingly, when calculating Core Earnings, analysts should strip out any gains/losses that are non-core, non-operating, or unusual. However, identifying unusual items has become increasingly difficult.

We leverage our Robo-Analyst technology to analyze all the disclosures in the footnotes and MD&A. In doing so, we provide a “novel database” that enables investors to overcome the inaccuracies, omissions, and biases of legacy fundamental datasets. This more reliable and proprietary data, proven in The Journal of Financial of Economics, drives our data and research.

Clients can audit all of the unusual items used in our calculations in the Marked-Up Filings section of each of our Company Valuation models. We are 100% transparent about what goes into our research because we want investors to trust our work and see how much goes into building the best earnings quality and valuation models.

Figure 1: THMO GAAP Net Income to Core Earnings Reconciliation – 2018 10-K

Sources: New Constructs, LLC and company filings

Figure 1: THMO GAAP Net Income to Core Earnings Reconciliation – 2018 10-K (continued)

Sources: New Constructs, LLC and company filings

This article originally published on February 27, 2020.

For more details on each of the items in Figure 1, along with how you can access our Core Earnings to net income dataset, click here. Note that data feeds with Earnings Distortion details are typically sold only to Institutional members.

Disclosure: David Trainer, Kyle Guske II, and Matt Shuler receive no compensation to write about any specific stock, style, or theme.

Follow us on Twitter, Facebook, LinkedIn, and StockTwits for real-time alerts on all our research.

[1] Only Core Earnings enable investors to overcome the inaccuracies, omissions and biases in legacy fundamental data and research, as proven in Core Earnings: New Data & Evidence, written by professors at Harvard Business School (HBS) & MIT Sloan and forthcoming in The Journal of Financial Economics.

Click here to download a PDF of this report.

Leave a Reply

Your email address will not be published.