To derive economic earnings, 30+ adjustments must be made to accounting earnings. These adjustments remove items hidden in the footnotes and MD&A of annual filings and close loopholes within GAAP accounting.
We calculate NOPAT in two ways, from an operating and financing perspective. See Figure 1. Figure 1 shows the basic calculations. On page 2, we share the complete calculations for specific companies.
While most earnings manipulation is not as blatant as the recent Valeant revelations, the fact remains that investors have to be on the lookout for earnings management at all times. To be properly vigilant, it’s important to understand why executives misstate earnings. When you understand the why, you’ll have a better sense of what you need to look for.
Picking from the multitude of style mutual funds is a daunting task.
Picking from the multitude of style ETFs is a daunting task.
The Energy sector ranks eighth out of the ten sectors as detailed in my Sector Rankings for ETFs and Mutual Funds report. It gets my Dangerous rating, which is based on aggregation of ratings of 19 ETFs and 87 mutual funds in the Energy sector as of April 3, 2014.
Picking from the multitude of sector ETFs is a daunting task. In any given sector there may be as many as 45 different ETFs, and there are at least 183 ETFs across all sectors.
The Energy sector ranks eighth out of the ten sectors as detailed in my Sector Rankings for ETFs and Mutual Funds report. It gets my Dangerous rating, which is based on aggregation of ratings of 19 ETFs and 86 mutual funds in the Energy sector as of January 15th, 2014. Prior reports on the best…
Picking from the multitude of style mutual funds is a daunting task. In any given style there may be as many as 949 different mutual funds, and there are at least 6,260 mutual funds across all styles.
Income statement adjustments include financing items like interest expense/income, preferred dividends and minority interest income. These items are related to the financing of a company’s operations, not the operations themselves. We always calculate NOPAT on an unlevered basis.
Why are there so many mutual funds? The answer is because mutual fund providers are making lots of money selling them. The number of mutual funds has little to do with serving investors’ best interests.
Fund holdings affect fund performance more than fees or past performance. A cheap fund is not necessarily a good fund. A fund that has done well in the past is not likely to do well in the future.
The Large Cap Blend style ranks first out of the twelve fund styles as detailed in my Style Rankings for ETFs and Mutual Funds report. It gets my Neutral rating, which is based on aggregation of ratings of 31 ETFs and 955 mutual funds in the Large Cap Blend style as of July 11, 2013.
Without removing the tax impact of non-operating items, one still gets distorted picture of a company’s operating profitability.
Reported earnings don’t tell the whole story of a company’s profits. They are based on accounting rules designed for debt investors, not equity investors, and are manipulated by companies to manage earnings. Only economic earnings provide a complete and unadulterated measure of profitability.
Investors who want exposure to this sector should buy a basket of Attractive-or-better rated stocks and avoid paying undeserved fees. Get the list of my top 20 Energy stocks to build your own portfolio.
Finding the best ETFs is an increasingly difficult task in a world with so many ETFs to choose from.
The Energy sector ranks fifth out of the ten sectors as detailed in my sector rankings for ETFs and mutual funds. It gets my Neutral rating, which is based on aggregation of ratings of 20 ETFs and 79 mutual funds in the Energy sector as of October 10, 2012.
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