Charles, quarterly earnings season is a veneer that is geared toward the high time preferences of Wall Street Bulls and Bubblemaniacs. The regulatory structure of this “corporate/government capitalism” is fueled by the Fed, for starters, and Wall Street corporatists jump on the fed bandwagon and cheer on the short-term earnings machines as they churn out the quarterly results that Wall Street expects and demands. This crazed, high time preference culture has fed the flop from long-term, balance sheet stability and growth to short-term, P&L (profit & loss), quarter-end margin mania. Organic growth is almost non-existent in many industries. Instead, corporations go out and acquire OP (operating profit) through acquisitions. Jack Welch become a pop culture hero for this very technique. Acquiring OP is the easy way to short-term bliss in a culture where patience (or a strong balance sheet) is no virtue. When the focus is on organic growth, accounting for that is essentially, “What is it that you need to illustrate with your financials? Give us a few hours, and we’ll get it done.” Anything can be done for the sake of visual results.
It’s so bad that CFOs, CEOs, etc. don’t even look far enough ahead to see the next quarter. It’s this quarter that matters, and only this quarter, with merely a few pains about how you’re stealing from next quarter to prop up this quarter (but we’ll worry about that later). You steal cash flow and OP from the next quarter to turn your tricks this quarter; you factor both accounts receivable and payables, so you are covering your ass, oops, I mean cash flow at both ends for the current quarter; you cut deals and give mega cash discounts on next quarter’s incoming dough to bring it in this quarter; you become drunk on purchase price variances as revenue in a standard costing system. The focus on the here-and-now only is not only dire and unsustainable, it is plain crazy. Note my post on something similar from yesterday.12:22 pm on January 24, 2006 Email Karen De Coster