Letters by Topic
Letters on Accounting Earnings vs. Economic Reality
GAAP earnings are a useful abstraction that often diverge significantly from the true economic earnings of a business.
1986·First systematic discussion of GAAP earnings limitations
We use GAAP earnings as a starting point, not an ending point. They are an abstraction that requires adjustment to reflect economic reality.
2002·On the dangers of earnings management
Earnings that are artificially smoothed are not necessarily better earnings. They may simply be more misleading.
Explore the concept
Accounting Earnings vs. Economic Reality is one of the ideas behind the ValueOS tools. See it applied to real companies.