CorporateEarningshomework - Corporate Earnings Who Can You...

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Corporate Earnings: Who Can You Trust? (Source: Financial Management Principles and Applications. Active Book. Arthur Keown, John D. Martin, William Petty, David F. Scott Jr.) Earnings Information is important to investors as they assess a company’s past results and try to predict what is likely to happen in the future. A company’s P/E ratio is one of the most calculated and discussed values in determining whether or not a company is currently a good buy. Further, growth in earnings is often estimated in order to assess how well an investment is likely to perform in the future. At times a company’s earnings can be very misleading indicator of a company’s past success and future prospects. The reasons extend well beyond the often-confusing rules regarding accounting practices. For example, when one company acquires another, there are choices to be made for how to “book” the acquisition. The choices are not always made on the basis of sound accounting models. Instead, such choices often involve conflict of interests and ethical dilemmas faced by corporate managers, auditors, and stock analysts. Who can you trust to provide you with accurate and unbiased information? The answering is very sobering “perhaps nobody.” Accurate, current, meaningful information is very important to well functioning capital markets. There are already many risks involved with making investments in the form of
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This note was uploaded on 09/10/2010 for the course IAH 001 taught by Professor Wang during the Spring '10 term at Michigan State University.

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CorporateEarningshomework - Corporate Earnings Who Can You...

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