Volume 20, No. 5

 

Over There: Where U.S. Earnings Rise:  Over here, however, is where they are reported. The basic consolidated financial statements present an American corporation’s results on a homogenous basis: investors see one number for say, net income or cash, and assume that all dollars of net income or cash are alike. Not so. There could be constraints on those amounts depending on where in the world they originated. While GAAP requires disclosures about foreign operations in terms of assets, revenues and to a lesser degree, pretax income, it doesn’t provide a feast of information for hungry investors.

The still-fresh 10-K packages don’t say much about overseas profits - but if you know where to look, they whisper about it. There’s crude information about the untaxed earnings of foreign subsidiaries in the tax footnote. Spend a little time with those figures and you can get some insight into how confusing consolidated financial statements may be, why managers dream of repatriation tax holidays, and just how dependent domestic companies may be on their foreign operations to drive earnings growth.

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