3.Firmsshouldnotbeallowedtomaintaindifferentbooksfor
taxandreportingpurposes.Thedifferentrulesfollowedinthe
twosetsofbooksfordepreciation,inventoryvaluationand
expensingaddtothecomplexityofthestatementsandmakeit
more difficult to value firms.
4.Firmsinmultiplebusinessesshouldberequiredtoreport
the reinvestment—capital expenditures, depreciation, and
workingcapital—theymadein eachbusinesseachyear,in
additiontowhatisalreadyreported(revenuesandoperating
income).Somefirmsalreadydothisvoluntarilybutallfirms
should provide this information.
- Firms with capital arms—GE and the automobile
companies come to mind—should be required to have
separateandfullfinancialstatementsforthesedivisions.The
interminglingofwhatisessentiallyafinancialservicesfirm
(GECapital,FordCapital)withaconventionalmanufacturing
or service firm makes it very difficult to value these firms.
34
Skeptical Analysts and Proactive Investors
Equity research analysts have always been cautious about
downgrading firms that they follow
35 andtheyhavebecomefartoo acceptingofmanagement
claims and promises in the past decade. The rising stock
marketduringthe1990sexplainedpartofthereticencetoask
questions, but another reason is the overlap between
investmentbankingandequityresearch.Analystshavehadto
worrymoreandmoreabouttheconsequencesofdowngrades
and sellrecommendations oninvestmentbankingrevenues,