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To: T Bowl who wrote (1801)	12/15/1997 11:10:00 AM
From: LK2	Respond to of 9256

Tod, I'm not a finance man (can't even figure out how much I owe my broker), but most companies have a lot of leeway on how they report earnings. Check this week's Barrons (Dec 15, 97, pages MW5-MW6) for an example of accounting flexibility for some mortgage lending companies. FirstPlus Financial Group uses 'gain-on-sale accounting'. EPS of $5 based on 'gain-on-sale accounting' would be about $2.50-$3 using more conservative accounting. There are a lot of ways for companies to fiddle with reported earnings, and even the 'good' companies often do this. One reason is that Wall Street values companies more highly (their stock price) if the companies report steady earnings, rather than earnings that swing widely. Another reason is that, as Lawrence Kam commented recently, when you take large 'one-time write-offs', you can then report higher and higher EPS in the future, which helps your stock price. (The current shareholders might get chopped up, but the insider management are option holders, and they can often reprice their options when the company stock drops) Check Ben Graham's 'The Intelligent Investor' for a brief overview on how companies have massaged earnings for longer than you've been alive. The practice is not a new one. -LK There is a lot of flexibility in reporting revenue and earnings (deciding when to take charge-offs like COMS just did, is just one example).

To: T Bowl who wrote (1801)	12/15/1997 12:41:00 PM
From: JimieA	Read Replies (1) \| Respond to of 9256

Here are my basic accounting answers: For the First Quarter, The company would report Sales of $10M and Cost of Sales of $5.83M 5M units sold X ($1M fixed costs + $6M variable costs)/6M units produced for a Gross Profit of $4.17M or 41.67% Also Inventory of $1.17M 1M X ($1M fc + $6M vc)/6M Inventory can be defined as costs which are deferred from the current period to a future period. If in the second quarter they sold these 1 million units for the same $2 each. The second quarter would have Sales of $2M and Cost of Sales of $1.17M 1M X ($1M + $6M)/6M for a Gross Profit of $.83M or 41.67% As you can see from the above, the company defers to a future period both variable and fixed costs. This is of course a theoretical exercise only. I hope this helps. A former weenie of finance