By David Trainer:
This report is one of a series on the adjustments we make to convert GAAP data to economic earnings.
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. Performing detailed analysis of footnotes and the MD&A is part of fulfilling fiduciary responsibilities.
We've performed unrivalled due diligence on 5,500 10-Ks every year for the past decade.
We make two historical adjustments to a company's invested capital related to goodwill. The first deals with unrecorded goodwill.
Goodwill arises when one company pays more than the market price for another company. Prior to 2002, the recognition of goodwill (as
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