This report summarizes our series of reports on how to convert GAAP data to economic earnings and derive true shareholder value in a discounted cash flow model as well as more accurate values for economic book value, and enterprise value.
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.
Converting GAAP data into economic earnings should be part of every investor’s diligence process. Meeting the challenge of performing detailed analysis of footnotes and the MD&A is a fiduciary responsibility. Each of the following reports explain each adjustment we make along with how many times we make each adjustment across the 3,000+ companies we cover.
A) Adjustments for NOPAT: to convert reported GAAP income to net operating profit after tax (NOPAT):
B) Adjustments for Invested Capital: to convert reported assets to invested capital (new reports made available daily):
We’ve performed unrivaled due diligence on over 55,000 annual reports over the past decade. This diligence enables us to provide unrivaled earnings quality and valuation research.