50, this "would indicate that the company really lost $0.50 of cash per share vs. The reported $1.00" (Wyman 2009).
A company could very easily show a positive EPS because of a one-off sale of an unprofitable venture. But if the company did not change its poor management policy, or was in a poorly-performing sector of the economy, this would not bode well for investors in the coming years. Thus, industry trends are another potential guideline for investors. Even if a company posts a strong showing one year, this is no guarantee that the trend upward will continue, if it is located in a potential 'black hole' of the economy. For example, a luxury company might sell off a division of its holdings, and post strong earnings, but if its core operations were showing a loss, this would be even more troubling for investors than if the company was part of a healthier sector of the economy. A luxury business many not flourish in the current cautious and pessimist economic environment.
Wyman does not use a specific, real-world example to illustrate his points. This is one critical weakness of his article, given that there are so many real-world examples of companies that have borrowed too much to show inflated earnings, or companies that are using borrowed funds or funds earned from selling off critical assets to boost their apparent earnings. Wyman also only includes a cursory discussion of how price to earnings (P/E) as an estimated forecasted are useful when deciding to invest in a company.
The reason Wyman shies away from specific...
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