Are all companies reporting profits these days really creating value for their shareholders? 

I have my doubts. Google, for one, has changed the way they keep the books in what looks like a bid to claim they hit their profit goals.

Google changed the life on its servers from four to six years to reduce depreciation, which just happened to inflate profits by $1 billion.

It helped that the profits beat estimates.

But they didn't increase sales or productivity. Nor did they reduce expenses. All they did was make a bookkeeping entry. 

On February 24 of this year, Google's stock was $89.35 a share. Today it is $126, or up 40%.

How many executives, employers, and other stockholders have made an additional 40% this year on Google shares?

Based on what I read in the WSJ, it has been traditional throughout history for companies to manipulate their numbers to impress investors, so to call it a non-traditional way to boost the bottom line is nonsense.

A recent Wall Street Journal headline seemed to confirm it.

Business Is Slowing. So Companies Are Juicing Profits.

Reallocate costs. Unwind charges. Delay depreciation. Companies are using nontraditional ways to boost the bottom line.

This article reminded me of some massive frauds of the past.

In the 1990s, Waste Management fraudulently inflated their earnings by claiming their garbage trucks had much longer lives than they did. The reason Waste Management committed this fraud was to meet predetermined earnings estimates and because revenues were not increasing as fast as projected, which to my mind, looks like the same game Google is playing. 

According to the Journal report at the time:

Waste Management, Inc. experienced many fraudulent crimes within its company between the years of 1992 and 1997. The senior officers at Waste Management, Inc began to engage in fraudulent activities involving the company’s accounting books. One of the fraud activities that occurred was avoiding depreciation expenses by assigning and inflating salvage values and extending the useful lives of the garbage trucks that the company owned

Waste Management, Inc. also increased environmental reserves to avoid irrelevant operating expenses. Netting helped eliminate about $490 million for operating expenses. Another fraudulent activity included improperly capitalizing a variety of expenses. 

The reason why the Waste Management, Inc. 1998 scandal occurred was in an attempt to meet predetermined earnings targets by expanding profits and pushing down or foregoing expenses. Revenues were not increasing as fast as they should have been. 

Then there was WorldCom, whose name is almost synonymous with corruption.

They committed massive fraud by capitalizing and spreading out ordinary repair expenses. That also looks not so different than what Google is doing. 

By capitalizing line costs, WorldCom avoided recognizing standard operating expenses when they were incurred, and instead postponed them into the future. The line costs that WorldCom capitalized were ongoing, operating expenses that required WorldCom to recognize immediately. 

By reducing reported line costs, the capitalization entries also significantly improved WorldCom’s line cost E/R ratio. In its public filings, WorldCom consistently emphasized throughout 2001 that its line cost E/R ratio stayed the same—about 42%—quarter after quarter. Had it not capitalized line costs, WorldCom’s line cost E/R ratio would have been much higher, typically exceeding 50%.

On IPOs, owners, executives, investment bankers, and venture capitalists can make wild predictions as to what future sales and earnings will be in order to inflate stock prices. Those people have frequently cashed out before earnings and sales don't meet the made-up predictions. 

It always ends badly.

Now, in the case of Google, maybe there's an innocent explanation.

But based on the information out there, I don't see it right now.

Meanwhile, cooking the books in the private sector is dwarfed by how the government cooks the books. The government routinely underestimates the cost of its new programs.

How else do they run up $31 trillion in debt while pretending government programs are "paid for"? 

For example, when Obamacare was passed, they pretended it was not only paid for but would also reduce the deficit.

One trick they used, which is frequently done, is that they counted ten years of revenue against six years of cost. (I am sure that most of our personal budgets would look much better if we only counted six years of expenses against ten years of earnings. 

They also pretended that the government taking over student loans would make big profits. 

  Because of these transition effects and the fact that most of the coverage provisions would be in effect for only 6 of the 10 years of the budget period, the cost estimates shown in this memorandum do not represent a full 10-year cost for the new legislation.   

The only federal program, in recent memory, that has truly paid for itself is in the Trump (Republican) tax cuts passed in 2017.

Revenues rose $803 billion in four years, despite COVID, and were $195 billion higher than what was projected by the CBO. 

After the GOP tax bill passed, CBO projected that individual income tax revenues would rise to $1.900 trillion by 2021, but they came in 8 percent higher than projected at $2.052 trillion.

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  • After the GOP tax bill passed, CBO projected that corporate tax revenues would rise to $327 billion by 2021, but they came in 13 percent higher than projected at $370 billion.
  • Total federal tax revenues were $3.32 trillion in 2017, $3.33 trillion in 2018, $3.46 trillion in 2019, $3.42 trillion in 2020, and $4.05 trillion in 2021. Revenues in 2021 are 22 percent higher than prior to the tax cut in 2017.

So why do Democrats continue to lie that Trump's across the board tax cuts cost trillions when revenues have gone up substantially?

The answer is because the media never has cared about facts as they push the radical leftist agenda. The fact checkers never dispute this blatant lie to intentionally mislead the public. 

Here is Debbie Wasserman-Schultz on MSNBC with the congenital liar, Al Sharpton. 

"The nerve of MAGA extremism like DeSantis and Nikki Haley and Tim Scott--they refused to even put on the table restoring some of the $1.9 trillion tax cuts that were unpaid for, that blew a hole in our deficit on their watch, under Donald Trump," she complained.

The moral of the story is always to do research before you invest or believe the government.

There is a lot of creative accounting, fraud out there. It doesn't matter if it is FTX, SVB, Google, or the government. 

It is a shame that for some CPAs the initials stand for cleaning, pressing, and alterations. 

Image: RawPixel // CC0 public domain