Well, always may have been a little strong, how about the last 30 years at least. You might look at a GAAP book like this one.
amazon.com
The Enron lady, S W, not sure of the spelling, also made this point. Also this from an old GAAP book
snip
An important rule relating to retained earnings is that transactions in a corporation's
own stock can result in a reduction of retained earnings (i.e., a loss on such trans-
actions can be charged to retained earnings) but cannot result in an increase in re-
tained earnings (any "gains" on such transactions are credited to paid-in capital, never
to retained earnings). Examples of situations that may create such treatment are treas-
ury stock transactions.
If a series of operating losses have been incurred or distributions to shareholders in
excess of accumulated earnings have been made and if there is a debit balance in
retained earnings, the account is generally referred to as "accumulated deficit."
snap
So if increases in paid in capital increases earnings you could be right.
I would think it would be pretty hard to evaluate the PE of any company that could book earning by selling it's own stock.
Graham on Retained earnings
snip
Retained Earnings Remain at Risk.
Retained earnings are equivalent to a fully subscribed preemptive rights offering made on behalf of all shareholders. Whether this form of raising equity capital is advantageous to the shareholder's investment position is the question to be answered. It is to be emphasized that cash dividends are certain whereas retained earnings are at risk. If the purpose of retained earnings is primarily defensive, the retention is impelled by competitive pressures rather than free choice looking toward enlarged earning power. These retained earnings reflect such factors as inadequate depreciation and obsolescence, and thus are not true economic earnings. They are retained to prevent deterioration of the firm's competitive position. Consequently, such compulsory reinvestment cannot be expected to add much to the stockholder's real equity. In these instances, the analyst would conclude that dependable earnings are those paid out in dividends and that the retained portion should be valued at a substantially discounted rate because it is not reliably available and remains at risk. The following section provides the logic and examples favoring reinvestment.
snap
PS, I never took any accounting courses, as far as I know, I was never even in a building where said courses were taught so you are on your own. |
