Just like the hit series “House Of Cards,” Wall Street earnings season has become rife with manipulation, deceit and obfuscation that could rival the dark corners of Washington, D.C. From time to time I do an analysis of the previous quarters earnings for the S&P 500 in order to reveal the “quality” of earnings rather than the “quantity” as focused on by Wall Street. One of the most interesting data points continues to the be the extremely low level of “top line” revenue growth as compared to an explosion of the bottom line earnings per share.  This is something that  I have dubbed “accounting magic” and is represented by the following chart which shows that since 2009 total revenue growth has grown by just 31% while profits have skyrocketed by 253%.
As I have discussed previously
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“Since 2000, each dollar of gross sales has been increased into more than $1 in operating and reported profits through financial engineering and cost suppression. The next chart shows that the surge in corporate profitability in recent years is a result of a consistent reduction of both employment and wage growth. This has been achieved by increases in productivity, technology and offshoring of labor. However, it is important to note that benefits from such actions are finite.”
As we enter into the tsunami of earning’s reports for the first quarter of 2014, it will be important to look past the media driven headlines and do your homework.  The accounting mechanizations that have been implemented over the last five years, particularly due to the repeal of FASB Rule 157 which eliminated “mark-to-market”accounting, have allowed an ever increasing number of firms to “game” earnings season for their own benefit. Â
This was confirmed in a recent WSJ article which stated:
