Core Earnings & Earnings Distortion
Fact: our Core Earnings & GAAP Earnings Distortion data delivers a novel source of alpha.
Proof: The Bloomberg New Constructs Core Earnings Leaders Index (ticker: BCORET:IND), which invests in stocks based on Core Earnings power, beat the S&P 500 Total Return by 897 basis points in 2025.
Fact: only our research captures material unusual gains/losses in footnotes that legacy research providers miss.
Proof: Core Earnings: New Data & Evidence, featured in The Journal of Financial Economics.
The Problem
Identifying unusual items that distort reported and consensus earnings is increasingly difficult. So difficult that most analysts and data providers don't do it – as proven in The Journal of Financial Economics (JFE).
The Answer
Our Robo-Analyst technology enables us to provide the best database of unusual items in the world and, as a result, provide the best measure of Core Earnings & GAAP Earnings Distortion in the world and the first new Value Factor in 40+ years.
Figure 1: How to Calculate Core Earnings
Total Revenue
+ Total Operating Income
– Total Reported Operating Expenses, Net
+ Total Hidden Non-Operating Expense, Net
– Reported Interest Expense/(Income), Net
– Reported Losses/(Income) from Unconsolidated Subsidiaries, Net
– Unreported Employee Stock Option (ESO) Expense
– Cash Taxes on Core Earnings
– Reported Minority Interest Expense, Net
– Reported Preferred Dividends, Net
– Reported Dividends on Redeemable Preferred Stock, Net
= Core Earnings
Sources: New Constructs, LLC and company filings
For more details on our calculation of Core Earnings, including the hidden and reported items we collect, we provide case studies here. For details on the difference between the “Reported” and “Hidden” items, click here. Note that data feeds with GAAP Earnings Distortion details are typically sold only to Institutional members.Earnings Distortion is the non-core, non-operating, and unusual gains/losses that must be stripped out when calculating Core Earnings.
Calculating Earnings Distortion
Earnings Distortion is the non-core, non-operating, and unusual gains/losses that must be stripped out when calculating Core Earnings.
We calculate two similar, but distinct, versions of Earnings Distortion: GAAP Earnings Distortion and Street Earnings Distortion.
GAAP Earnings Distortion = Net Income Minus Core Earnings
Street Earnings Distortion = Street Earnings Minus Core Earnings
Both versions calculate Earnings Distortion in the same way, but GAAP Earnings Distortion measures the distortion in GAAP Earnings, while Street Earnings Distortion measures the Distortion in Street Earnings.
Figure 2 shows the key components of Earnings Distortion. The higher the Earnings Distortion, the more overstated GAAP or Street earnings are. The lower the Earnings Distortion, the more understated GAAP or Street reported earnings are.
Figure 2: Components of GAAP Earnings Distortion
+ Earnings Distortion from 11 Categories of Hidden Items, Net
+ Earnings Distortion from 13 Categories of Reported Items Pre-Tax, Net
+ Income Tax Distortion
+ Earnings Distortion from 2 Categories of Reported Items After-Tax, Net
= Total Core Earnings Distortion, Net
Sources: New Constructs, LLC and company filings
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