Merrill Lynch to use FASB guide on estimates

Merrill Lynch to use FASB guide on estimates

In the wake of the Enron scandal, Merrill Lynch has announced a plan to more accurately evaluate a company's quality of earnings.

Merrill’s director of equity research, Deepak Raj, told analysts in a memo they should be employing measures that go beyond pro forma earnings and consider the US Financial Accounting Standards Board’s guidelines when formulating earnings estimates and ratings opinions.

Some lawmakers and investors have said that analysts rely too heavily on pro forma results, which often overstate a company’s profitability.

In addition to industry-specific criteria already being used, the company suggests researchers focus on cash flows compared to net income, return on capital, return on asset measures, and receivables and inventory turnover.

Raj also warned analysts that some companies may have ‘significant pension liabilities, as well as off-balance sheet financing and the potential impact of mark-to-market accounting’.

Merrill Lynch expects to have its new evaluating framework in place by its second quarter.

Share

Subscribe to get your daily business insights

Resources & Whitepapers

Why Professional Services Firms Should Ditch Folders and Embrace Metadata
Professional Services

Why Professional Services Firms Should Ditch Folders and Embrace Metadata

3y

Why Professional Services Firms Should Ditch Folde...

In the past decade, the professional services industry has transformed significantly. Digital disruptions, increased competition, and changing market ...

View resource
2 Vital keys to Remaining Competitive for Professional Services Firms

2 Vital keys to Remaining Competitive for Professional Services Firms

3y

2 Vital keys to Remaining Competitive for Professi...

In recent months, professional services firms are facing more pressure than ever to deliver value to clients. Often, clients look at the firms own inf...

View resource
Turn Accounts Payable into a value-engine
Accounting Firms

Turn Accounts Payable into a value-engine

3y

Turn Accounts Payable into a value-engine

In a world of instant results and automated workloads, the potential for AP to drive insights and transform results is enormous. But, if you’re still ...

View resource
Digital Links: A guide to MTD in 2021
Making Tax Digital

Digital Links: A guide to MTD in 2021

3y

Digital Links: A guide to MTD in 2021

The first phase of Making Tax Digital (MTD) saw the requirement for the digital submission of the VAT Return using compliant software. That’s now behi...

View resource