Surprise, Surprise
Company earnings are, you’d have thought, a pretty straightforward measure of a company’s health. After all, earnings are a statement of profits, are they not? Of course this is finance and, therefore, nothing is quite as it seems.
You see earnings are not necessarily cash and contain a mysterious component called accruals, the calculation of which keeps accountants the world over gainfully employed. Companies that rely heavily on accrual based earnings tend to have more earnings surprises and this anomaly is exploitable by investors: or at least it was, until it mysteriously vanished.
