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To: Lucretius who wrote (153262)	2/25/2002 1:46:34 PM
From: Petrol	Respond to of 436258

Kerschner on earnings quality By Julie Rannazzisi Edward Kerschner, global investment strategist at UBS Warburg, maintains that the earnings quality issue is not a new one and that the recent deterioration has been overstated by many observers. He claims that in the 1970s, earnings quality was poor because of high inflation. "But with inflation low, earnings quality is now better than the historical norm based on an earnings quality index derived from the GDP accounts. By this measure, earnings quality has been excellent -- it is 280 basis points above its long-term average," the strategist said in a research note. The huge tech write-offs of 2001 do not reflect "business as usual" by firms trying to disguise weak earnings but rather the U.S. recession and a collapse in asset values following the tech boom, Kerschner claimed. "Unlike the pro-forma earnings devised by unprofitable dot-coms, the huge write-offs of 2001 were not an attempt to mislead investors, so the two phenomena should not be equated. These write-offs primarily reflect the over-inflated prices paid for past acquisitions, not an overstatement of prior earnings," Kerschner continued. He believes the write-downs taken by tech firms in 2001 were a quicker and better way to clear the financial debris after a boom went bust compared with the protracted rebuilding of bank balance sheets after the collapse of the 1970s energy boom.