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Articles by Baruch Lev
We analyzed 40,000 M&A deals over 40 years. Here’s why 70-75% fail
Just like many major retailers across the country, especially in the home goods industry, Home Depot (HD) is suffering from a sharp change in consumer behavior. An increasing number of consumers continue to watch their spending carefully, and Home Depot just shed some light on why. Home Depot’s third-quarter earnings report for 2024 revealed comparable sales in the U.S. decreased by 1.2% year-over-year during the quarter.
We analyzed 40,000 M&A deals over 40 years. Here’s why 70-75% fail
Canadian Natural Resources acquires Chevron’s shale assets for $6.5 billion. The UAE’s Adnoc purchases Convestro for $16.4 billion. PepsiCo swallows Siete Family Foods for $1.2 billion, Marsh McLennan snatches McGriff Insurance for $7.8 billion. And Rio Tinto buys Arcadium Lithium for $6.7 billion. That’s just a small sample of October 2024’s mergers and acquisitions (M&As).
No se deje engañar por las pérdidas de las empresas
Empresas como Tesla pueden ser 'perdedores ficticios' por invertir en activos intangibles como I+D. DREAMSTIME EXPANSION Las absurdas normas contables hacen que las empresas innovadoras parezcan peores de lo que son. Un conocido empezó su clase de finanzas de un MBA preguntando a los alumnos: "¿Quién invertiría en una empresa que ha registrado 10 años consecutivos de pérdidas?".
Don’t be fooled by corporate losses
The writer is a professor of accounting and finance at New York University Stern School of Business A colleague opens his MBA finance...
Non-GAAP Earnings: Wishful Thinking Or Real Profits?
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Earnings Guidance Is Back: Oh No, Oh Yes
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Back To The Future: FASB To Reverse Goodwill Accounting
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The Rise, Fall, And Rise? Of The Conglomerates
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2020: Four Myths Busted
2020 was a calamitous year, but you know all about that. What you may not know is that four widely held beliefs among investors were empirically debunked in 2020. Here they are: ESG Is Not An “Equity Vaccine.” ESG (corporate environmental, social, and governance activities) is widely touted as “the best of all worlds.” Not only does it benefit the environment and society, it’s also good for shareholders.
M&A In The Wake Of Corona
By Feng Gu and Baruch Lev Mergers & acquisitions (M&A) activity came to a screeching halt early this year. Most acquisitions planned in the late 2019 (like Charles Schwab’s (SCHW) intention to acquire Ameritrade (AMTD), or Xerox’s (XRX) plan to acquire HP (HP)) were much delayed until market outlook improved or abandoned altogether, and new ones are rare.
When A Loss Isn't Really A Loss
By Feng Gu and Baruch Lev This is earnings season, and companies reporting losses are a daily occurrence. But even prior to COVID-19, losses proliferated. In 2019, a full 46% of U.S. public companies reported an annual loss, and among high-tech and science-based enterprises losses reached an epidemic level of 70%. And this in the booming pre-Covid economy.
The ESG Factor: A Contrarian View
How many times have ESG (corporate environmental, social, and governance activities) names popped up on your screen in recent years? Likely too many to count. It seems that these days everyone, from Al Gore to Larry Fink, urges companies to spend significant resources on various environmental and social causes and exhorts investors to plough money into ESG funds or stocks of companies high on the ESG totem.
Value Investing Is Still Moribund
By Baruch Lev and Anup Srivastava In our widely debated paper (“Explaining the Recent Failure of Value Investing”), we have established empirically the following: The failure of value investing isn’t a recent phenomenon. In fact, this highly touted and widely used investment technology stopped performing in the late 1980s. Value investing had a five-to six-year resurgence in the early 2000s, mainly due to Nasdaq’s collapse, and then returned to its long-term underperformance.
Do Asset Write-Offs Matter? Not Really
On Tuesday, June 30, Royal Dutch Shell (NYSE:RDS.A) (NYSE:RDS.B), a leading oil-and-gas company, announced it would take an asset write-off — slashing its asset values on the balance sheet — of between $15 billion and $22 billion in the second quarter. The same amount, of course, will hit Shell’s quarterly earnings. The massive write-off, said Shell, is a result of its assessment of the coronavirus pandemic impact on its business and asset values, particularly the integrated gas unit.
Going Concern Warnings: Should You Pay Attention?
• On May 11, 2020, Chesapeake Energy (NYSE:CHK) issued a warning: “Management has concluded that there is substantial doubt about the company’s ability to continue as a going concern.” It further cautioned that the company doesn’t expect to be in compliance with financial covenants.
In This Corona Quarter, Take Earnings Reports With A Grain Of Salt
A lot of companies are reporting losses, of course. But there is nothing new in that. You will surely be surprised to hear that in the best of times ― the pre-coronavirus years, 2012-2018 ― 45%-49% of all U.S. public companies reported an annual loss. In the best economy in decades, half the enterprises were losers? How can this be?
Value Investing In The Time Of COVID-19
Co-authored by Anup Srivastava Many investors, institutional and individuals, are dumping stocks these days. But some argue that this is the time to go against the grain and play the stock market smartly. Not surprisingly Larry Kudlow, Director of the National Economic Council, said recently that long-term investors should “very seriously” look at buying the dip in stocks. Others, like Mark Cuban, urge long-term investors not to sell into the panic.
How To Distinguish Between GAAP Losers And Real Losers
Would you believe that roughly 45% of U.S. public companies are reporting annual losses? And that in a booming economy and record breaking stock market. The percentage of these loss-reporting companies didn’t change much in the past ten years, but was substantially lower in previous years. In the 1970s, less than 20% of companies reported annual losses, climbing to around 35% in the mid-1980s, and to 40% in the late 1990s.
The Gap Between Large and Small Companies Is Growing. Why?
Research and news headlines are replete with the idea that traditional large companies can’t innovate, and that smaller digital companies will render many larger ones extinct. While we’ve seen numerous startups of the last thirty years not only disrupt businesses but become the megacorporations of today, we wondered whether this disruption is accelerating with the momentum of digital revolution.
Kraft Heinz: How About Some More R&D
Late last week, the Kraft Heinz (NASDAQ:KHC) Company served investors with another brands write-down: $1.22 billion. This, in the wake of a massive $15.4 billion write-down of brands and goodwill last February. And, the Journal (August 8, 2019) reports that KH considers further brands write-downs. When will it all end? KH’s CEO was quoted by the Journal saying: “We need to work on our competencies for the future.” Indeed.
Uber: Pre-IPO Observations On Performance
Investors eagerly await Uber’s (UBER) impending IPO, and with good reasons. It's not every day you get an opportunity to invest in an industry -- ride-sharing -- founder and leader. Uber’s successes and travails are legendary, and soon you’ll have an opportunity to share in its ownership. Now is the time for a sober, unemotional examination of Uber’s recent operating performance.
When Will They Learn? Big Mergers Often Fail
On Friday, February 22, 2019, shares of food giant Kraft Heinz (NASDAQ:KHC) dropped 27%, amounting to a $14 billion shareholder loss. The main reason for the price calamity: a $15.4 billion write-down of Kraft’s major brands, like Oscar Mayer, Velveeta Cheese, Planters Nuts, and Maxwell House Coffee. An asset write-down means that due to operating setbacks and competitive pressures, the present value of the expected cash flows from these brands is now lower than their balance sheet value.
Spotify Isn't Profitable? Big Deal!
The media is abuzz about Spotify (SPOT) being deep in the red: “If Spotify is so huge, why is it losing money?” ponders ABC News; “Spotify intended to lose more money.” states the Motley Fool, and Fortune buries the music streaming company for good: “Why Spotify will never make money.” (May 3, 2018). Spotify seems to have reached its end.
What A Difference 20 Years Makes: Now You Get To Be A Smart Investor
On Sunday, May 3, 1998, a front-page article in The New York Times reported on a breakthrough in cancer research by EntreMed, a biotech company developing cancer drugs. Investors’ reaction was swift and decisive: On Monday May 4, EntreMed’s share price surged from $12.1 close on Friday, to $85.0 on Monday’s opening, and closed near $52.0. The price hovered around $30.0 during the three following weeks. And not just EntreMed; the Nasdaq Biotechnology Combined Index also rose 7.5% on that Monday.
Scrap Quarterly Reporting
Last Friday, President Trump asked the SEC to examine the elimination of quarterly financial reports. The President mentioned an executive (apparently Indra Nooyi, outgoing CEO of PepsiCo (PEP)) who told him that eliminating quarterly reporting will enhance executives’ long-term orientation, thereby increasing investments and jobs. A panacea. I believe terminating quarterly reports is the right move, but for the wrong reasons.
Who Reads Financial Reports? Nobody!
For several years I have argued, based on comprehensive statistical evidence, that corporate financial reports―quarterly and annual statements―have lost most of their relevance and usefulness to investors. Corporate earnings, in particular, are no longer a reliable measure of enterprise value change, nor are they indicators of future performance and growth.
The Case for Guidance
Alot of prominent people don't like the idea of giving the market an early heads-up. Critics, who include Warren Buffett, Al Gore and groups like the Chamber of Commerce, have blasted the practice of issuing "guidance"—advance notices about earnings and other matters. They argue that it wastes managers' time and encourages short-term thinking, and may even drive companies to seek capital overseas instead of in the U.S. But...
Investing In The Car Batteries Space
By Baruch Lev and Chenqi Zhu, New York University The Wall Street Journal recently wrote: “Today, the battery industry is mustering for exponential growth as car makers electrify their fleets… The path to profitability is far from clear…. Investors looking to benefit from this gold rush need to take a long-term view.” Good advice, but how could an investor form such a long-term view? The main players in the batteries space are large car companies and dedicated battery developers/manufacturers.
Book Review: The End Of Accounting And The Path Forward For Investors And Managers
The End of Accounting and the Path Forward for Investors and Managers. 2016. Baruch Lev and Feng Gu. Flaws in generally accepted accounting principles (GAAP) severely limit the usefulness of financial reporting to security analysts. The following are examples: In view of such serious shortcomings, should it surprise anyone that the earnings derived through traditional accounting are a second-rate influence on stock prices?
Surprise: Investors Like Non-GAAP Earnings
Another earnings season is over, and the controversy about non-GAAP earnings-those alternative earnings numbers disclosed by companies-rages on. "Wishful thinking! Kool-Aid! Outright deception!" say the detractors.
Are Your Accounting Methods Holding Back Your Business?
Generally accepted accounting principles (GAAP) have been the standard in financial reporting for decades. But has the business world evolved so much that GAAP rules have outlived their usefulness? At least one critic thinks so. That would be Baruch Lev, the Philip Bardes Professor of Accounting and Finance at New York University Stern School of Business.
Financial statements are outliving their usefulness for investors — and here’s how to replace them
It used to be that earnings moved stock markets, but now even the “calamity” of missing analysts’ consensus forecast of earnings causes an average 1.5% drop in the share price that day — a change that’s within the range of normal. The flip side — surpassing the consensus — boosts the price by merely about half a percentage point. Face it: reported earnings under GAAP don’t matter as much as they used to. And it’s not just earnings that have lost relevance for investors.
Non-GAAP Earnings Aren't The Solution
The astonishing proliferation of non-GAAP earnings -- reported by 90% of S&P 500 companies, according to a recent Seeking Alpha article -- is a symptom, not a solution to GAAP's shortcomings.
The End of Accounting
When Netflix’s quarterly earnings announcement in April fell short of the consensus estimate of analysts, its share price surprisingly rose almost 18% on the announcement. An investor blackout? No. Investors justifiably ignored the backward-looking accounting information, reacting enthusiastically to a sharp rise in the forward-looking new-subscribers indicator: 4.9 million vs. expected 4 million.
The End of Accounting and the Path Forward for Investors and Managers (a review)
Drawing from a comprehensive empirical analysis, the authors demonstrate how financial reports have largely lost their relevance and present an actionable alternative for finance professionals. Flaws in generally accepted accounting principles (GAAP) severely limit the usefulness of financial reporting to security analysts.
Getting Creative With the G.D.P. (Published 2013)
Strategies WE have undervalued creativity and research. And despite the hoopla whenever Apple or Google releases a new product, we haven’t grasped the full significance of innovation. That critique wouldn’t be surprising if it came from an underappreciated artist, scientist or technologist. But it’s being made in what may seem an unexpected quarter: the offices of the federal government. It’s the verdict of the experts who measure the American economy.
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