Perspectives Blog

Beware of earnings gimmicks

Jason Wang, Senior Quant Analyst | March 10, 2014

The combination of slow revenue growth, high existing margins and increased multiples creates incentives for more aggressive accounting. Stocks with the lowest accounting accruals outperformed their benchmark by 2.7% per year between 1993 and 2013. History suggests that paying close attention to changes in earnings quality can be of significant value for investors. Since the global financial crisis, economic recovery worldwide has been slow. O…