Torturing the numbers

2 November 2007 By Martin Hutchinson

A study by consultants REL shows that US companies manipulate their fourth quarter earnings. Talk about shortterm thinking. But analysts and boards expect no less. The consultants suggest rolling 12month targets. But lower CEO pay and better job security would help more.

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Gaming the Numbers, a study by the financial consultancy REL and CFO Magazine, shows that US companies manipulate operations in the fourth quarter of their fiscal years to produce short term earnings and improved balance sheets. Corporate working capital increases by $100 billion in the fourth quarter, then reduces by $122 billion after the yearend. In 200406, corporate sales increased by an average of 5.8% between their third and fourth quarters and then decreased by an average of 3.8% between the fourth quarter and the first quarter of the following year.

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