What You Don't Know About a Company's Earnings Can Cost You

Investors should focus on the core, recurring operating profitability of the business when valuing stocks. Otherwise, they risk getting fooled by one-time, non-operating expenses or income that artificially and temporarily distorts reported earnings. Often, one-time items are easy to find because they are clearly labeled as such on income statements. However, many times they are not easy to find because they are hidden inside normal, operating line items like “Cost of sales”. The only way to find these hidden one-time items is to scour the Management Discussion & Analysis (MD&A) and the Financial Footnotes in 10-K filings. Most investors will be surprised to learn that we found over 13,000 one-time items buried in normal line items in the MD&A and Footnotes of 10-K filings from 1998 thru 2/15/2011. And don’t think for a second that these one-time items are not material. During the last reported fiscal year, companies concealed over