Balance Sheets Don’t Always Tell the Whole Truth
The reported assets on a balance sheet almost never tell the whole story of the capital invested in a business. Accounting rules are full of loopholes that company management can exploit to hide issues and obscure the true amount of capital they’ve invested in a business over its lifetime.
For example, Unisys Corporation (UIS) recorded a $4.1 billion loss on its benefits plan as other comprehensive income/loss on the balance sheet in 2014. If this loss had been treated as a loss of equity and recorded in invested capital, Unisys’ invested capital would have been artificially lowered and its ROIC boosted to 10%. However, we add back this loss to account for the true amount of capital invested into Unisys. As a result, Unisys’ invested capital is much higher and its ROIC is much lower, sitting at just 3% — far below its cost of capital of 9%. Accordingly, the company’s stock price is down over 30% year to date.
There are countless other examples of how footnotes diligence could have given investors a clear picture of which companies were worth investing money into in 2014.
We’ve compiled a “Top 11” list of the companies (who have already filed for 2014) with the largest adjustments to their balance sheets across the 11 adjustments we make.
See which companies have had the largest adjustments to their balance sheets this year for only $9.99.
Photo Credit: Philippe Put (Flickr)