That was my immediate reaction when I finished reading a paper by Maria Borysoff and Gregory Brown about the reported multiples of invested capital by private equity funds.
There was another paper of the same vintage which showed that earnings does not match cashflow in the long run. They took (I think) every company which had been in the S&P 500 for the past 10 years, added up earnings & cashflow and divided. Over ten years, they should be the same, right?
Earnings was very very consistently ~1.1x cashflow! GAAP accounting rules allow many small acts of puffery, and every big public company does all of them.
Sorry, I have no idea how to dredge this up as a citation.
Hello BREIT investors!
For an illustration of the degree of volatility smoothing in Private versus Public Assets see the following small downloadable Excel and VBA demonstration https://www.academia.edu/41838881/Impact_of_Autocorrelation_on_Expected_Maximum_Drawdown
There was another paper of the same vintage which showed that earnings does not match cashflow in the long run. They took (I think) every company which had been in the S&P 500 for the past 10 years, added up earnings & cashflow and divided. Over ten years, they should be the same, right?
Earnings was very very consistently ~1.1x cashflow! GAAP accounting rules allow many small acts of puffery, and every big public company does all of them.
Sorry, I have no idea how to dredge this up as a citation.
too bad. I really would love to find that paper because it sounds fascinating.