"The proliferation of non-standard accounting measures such as underlying profit and the modification of EBITDA (earnings before interest, tax, depreciation and amortisation) to everything from EBITDAX to EBRITDA and other permutations, has created what fund managers argue is an increasingly confusing picture of what companies are a really up to.
Australian companies have to report statutory numbers, but they also have the flexibility to paint a more flattering picture using underlying profit or profit excluding one-off items in presentations and other material.
Geoff Wilson, chairman of Wilson Asset Management, echoes this. "If you're not a trained analyst, it's difficult for the retail investor to interpret. The most important thing for us is the cash flow, because the profit and loss is easy to manipulate . It's hard to manipulate cashflow."
G8 Education added back "non operating" items such as deferred consideration, acquisition expenses, share-based payments and foreign currency impact among other things to turn a 9 per cent fall in net profit into a 7 per cent rise in underlying net profit. Comment sought from G8 was not forthcoming."
Extract from AFR Weekend.
GEM Price at posting:
$3.91 Sentiment: None Disclosure: Not Held
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