For the good of American capitalism, let's hope that dastardly deeds of the kind uncovered recently at companies such as Enron and Worldcom are much more the exception than the rule. But while large-scale accounting fraud may be relatively rare, the fact is that top management at many publicly held companies routinely fudge their earnings numbers. Maybe even at your company.
Why do they do it? They've got to hit the consensus quarterly earnings estimates set by financial analysts. Companies whose profits fall short of the numbers often see their stock prices plummet, sometimes by double-digit percentages. And because many top executives receive part of their annual compensation based on their company's stock price, many "manage" their earnings a bit each quarter to be sure of beating analysts' earnings-per-share estimates, if only by a penny or two. It's a reality, like it or not, and a practice that Wall Street has long been aware of.