Are designed to reflect a company’s maintainable profits. Back in the mist of time, before complex accounting rules and diversified businesses, it was pretty easy to determine whether a business was making a profit or a loss. As the business world developed, earning figures have become a great deal more complex, and are affected by an enormous number of factors. A company could report a loss because it decided to write off a business that was not making money, for example. This long-term strategic decision may have resulted in a significant loss of money, which would have affected its earnings, but is unlikely to reoccur, assuming the business is financially sound. Thus the earnings figure may not really reflect the ongoing health of the business. This is where the concept of headline earnings comes in. It is designed to provide an easily comparable number that investors can use to judge the ongoing health of the business. However, it is probably a good idea to go through the items that have been excluded from headline earnings, as the figure is open to manipulation.
Posted on: Wed, 21 Aug 2013 21:10:30 +0000