Tech Companies Fly High on Fantasy Accounting

According to a June 18, 2015 article in The New York Times, “Investor enthusiasm for all things tech is understandable, given the disruptions the industry is bringing to so many businesses and the potential profits associated with that upheaval. But there’s a more troubling aspect of the current exuberance for technology stocks: the degree to which so many of the popular companies with premium-priced shares promote financial results and measures that exclude their actual costs of doing business. These companies, in effect, highlight performance that is based more on fantasy than on reality…

Among the biggest costs these companies ask investors to ignore are those associated with stock-based compensation, acquisitions and restructuring. But these are genuine expenses, so excluding them from financial reporting makes these companies’ performance look better than it actually is. This, in turn, makes it harder for investors to understand how their businesses are really doing and whether their shares are overvalued or fairly priced.

Read the full article
http://www.nytimes.com/2015/06/21/business/high-tech-fantasy-accounting.html?_r=0