Any Earnings Will Do

If you ride on the optimism of bulls in a bull market, any type of bottom line may make you happy. All you want, perhaps, is a comparison of the market price of a company versus the earnings per share. A low PE is good, a high PE is bad.

Let The Chairman Worry About It

Indeed, the board of directors is in place in any publicly listed company to ensure that the financial statements are properly prepared and that the auditors ensure that the numbers are true, accurate and not misleading. Shareholders are required to trust the board of directors who are in place to protect the interest of capital providers, and the numbers reported (particularly the earnings per share) are what they are.

Trust will save you a lot of worries and headaches, and you need to display and believe in what people tell you during the everyday course of business.

Trust, But Verify

Nothing malicious is implied by suggesting that you verify all the information provided by the board of directors and auditors (and even analysts), when reviewing the sources and the information provided. Could it be possible that there are more than one angle or perspective to present a set of information? Could it be that an innocent mistake was committed, in spite of the corporate governance in place? Can parties to the corporate governance be slanted in their biasness, because of the incentives in place for them that encourage them to report ever so favourably, in the required market reports?

Skepticism

In the book, Quality of Earnings, by Thorton O'Glove, skepticism and a lookout for issues is encouraged to ensure that the earnings per share number provided is of high quality - conservative rather than liberal.

Do consider reading the book, if you are looking to brush up on your quantitative analysis.

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