• What is The EPS Syndrome^TM?
• What if a company has been diagnosed with The EPS Syndrome^TM multiple times? 
• How do I determine if a company has The EPS Syndrome^TM?
• Why does Enron have positive OPS^TM after it was diagnosed with The EPS Syndrome^TM?  
• What if my company had The EPS Syndrome^TM in the past?
• Can I determine that a company has The EPS Syndrome^TM on my own?
• If a company has been diagnosed with The EPS Syndrome^TM what are my next steps?  

Diagnostic Charts FAQ's

• Why examine the "20 Quarters" chart?
• Why examine the "5 Years" chart? 
• Why examine "OPS^TM" for the "Last 4 Quarters" instead of the most recent quarter?  
• Why examine the "Last 4 Quarters" chart?  
• What is the "4 Qtrs Combined" in the "OPS Diagnosis^TM"? 
• What is the "OPS Count^TM"? 
• What is a "Fiscal Year End"?

Data FAQ's

• What is the source of the data upon which the diagnosis is being made? 
• How often do you update new data? 
• Is it possible to find the data on the "Last 4 Quarters," "20 Quarters," and "5 Year" charts. 

Cashflow FAQ's

• What is cashflow?
• What is Cash Flow from Operations?
• What is positive cashflow from operations?
• What is negative cashflow from operations?
• What is cashflow from financing?
• What is cashflow from investments?
• What is CFPS?
• What is EBITDA?
• Are OPS^TM and CFPS similar?

EPS FAQ's

• What is EPS (Earnings Per Share)?                                                                                                          
• Why is Wall Street so focused on quarterly EPS (Earnings Per Share)? 
• What can be done to limit exposure to misleading EPS (Earnings Per Share) figures?
• What are earnings?
• Why is there a delay of several weeks or months in the updating of the OPS charts after a company issues a press release announcing its earnings or EPS?

StockDiagnostics.com^TMFAQ's

Q.  What is StockDiagnostics.com?

• A private Company
•  6 years of research and development of proprietary software designed to reveal the logical relationships between financial statement data and stock price performance.  This software examines, combines and displays financial statement data in unique ways, allowing breakthrough discoveries to be made. 
• Software examines financial statements for abnormalities and accounting irregularities; diagnoses and predicts problems in public companies that appear to be healthy.  
• Software analyzes and monitors over 1800 data points for each of over 10,000 public companies, more than 200 industries and at least 12 sectors.  
• Development team led by former Dow Jones & Telerate Executives.
• Business team led by co-founder of Egghead Software.  
• Strong intellectual property: Multiple patents-pending on technologies, algorithms, formulas and processes, for diagnosing public companies and their stocks.  

Created OPS^TM and OPS Diagnostics^TM

• "OPS" (Operational-cashflow Per Share) is a new category of financial analysis.  "OPS" will ultimately be recognized as the primary financial statement measure, versus the widely used EPS (Earnings Per Share).
• "OPS's" reliability will give it precedence over all earnings based measurements such as EBIDTA, EBIT, EBITD, EBITA, Cash Earnings, Free Cash Flow, CFPS and Pro Forma Cash Flow.
• Our "OPS" Diagnostics software discloses the "true health" of every US non-financial public company.
• User-friendly diagnostics software makes it easy for even the novice investor to understand.

Discovered "The EPS Syndrome^TM"

• Discovered a new financial statement syndrome, which was validated by comparing the pre-bankruptcy financial statements of Enron, Sunbeam and scores of other companies.
• StockDiagnostics.com calls this early warning system, "The EPS Syndrome," and has filed patents on its discovery.
• If available, StockDiagnostics.com software would have diagnosed Enron with "The EPS Syndrome," in May of 2001.
• Stock Diagnostics has now diagnosed over 1000 companies with "The EPS Syndrome."   Only 300 are still trading at over $10 per share.  Share prices have declined 90% or more for 400 plus companies.  The share prices for 72% are already down since being diagnosed.
• Our software has the ability to combine all the data from an entire industry and diagnose it as a whole.  Recently a major industry has been diagnosed with the "The EPS Syndrome."   The shares of many of the leading companies in this industry are currently at or near all time highs and highly recommended by Wall Street. 

Discovered OPS Rankings^TM

• Discovered that each and every public company's "OPS" (Operational-cashflow Per Share) logically falls into a mathematical sequence that ranks it into one of eight distinctive categories.

• "OPS Rankings" is a patent pending, completely computerized and objective ranking system.  The rankings are updated quarterly.

• Rankings are suspended on any public company that has been diagnosed with "The EPS Syndrome."   Had Stock Diagnostics been operational, rankings would have been suspended on Enron during May of 2001.

• "OPS Rankings" are calculated immediately following a company's release of its most recent quarterly or annual report. 

• Our timeliness yields major advantages over established ranking services.

How widespread are the problems?

• As of March 15, 2002, over 29% (2,173) of all non-financial US public companies (7,448) have been diagnosed with either, negative "OPS", or "The EPS Syndrome."

[Back to Top]

Q.  Why diagnose?

Investors often use corporate EPS (Earnings Per Share) reports as indicators in their decisions to buy, sell or hold stocks.  Recent events have shown that reliance on these EPS reports carries a significant risk and that they may not be a true barometer of a company's financial health.  A recent Harvard Business Review article, "The Earnings Game," June 2001, documents many of the problems inherent in "the earnings game."  It conclusively shows how some businesses have been guilty of the "management of earnings."   "OPS" (Operational-cashflow Per Share) cannot be manipulated and is a much more reliable indicator of a company's true health than EPS (Earnings Per Share).

[Back to Top]

OPS^TM FAQ'S

 

OPS^TM is StockDiagnostics.com acronym for "Operational-cashflow Per Share."  "OPS" is calculated by dividing a company's Cashflow from Operations by the total number of shares outstanding.  Stock Diagnostics created "OPS" (Operational-cashflow Per Share) to focus stockholders on the real values of a company as opposed to the artificial values that can be produced by creative accounting under EPS, CFPS, or EBITDA.  (See: "What is EPS, CFPS, EBITDA).  Learn more about OPS^TM (Operational-cashflow Per Share).

[Back to Top]

In its simplest form Earnings Per Share may reflect the booked profits or losses from a variety of activities including, but not limited to, the sales from the company's core operations. "OPS" (Operational-cashflow Per Share) more accurately reflects the actual cash that the company is generating from its core business.  EPS does not reflect the actual cash that a business is generating as it includes non-cash items such as receivables and other non-cash items.

[Back to Top]

Q.  Is OPS^TM a measure that can be used to monitor and diagnose bankrupt companies?

"OPS" is a  good measure to use for diagnosing bankrupt companies.  Recently Warren Buffet and his company Berkshire Hathaway were thwarted from purchasing the "Fruit of the Loom" company (SYMBOL: FTLA) out of bankruptcy because their offer was too low.  After it entered into bankruptcy, Fruit of the Loom's "OPS"  has been positive and has grown for 3 out of the last four years even though its EPS is still negative. 

[Back to Top]

Q.  Can OPS^TM be used to diagnose "financially troubled" companies?

"OPS" can be utilized to identify financially troubled companies.  For example, Global Crossing's "OPS" hit a "record" negative low in November of 2001 and it subsequently filed for bankruptcy on January 28, 2002. 

[Back to Top]

Q.  Can OPS^TM be used to discover undervalued companies? 

"OPS" is a very good measure to use for finding undervalued companies.  Generally a struggling company's "OPS" will turn positive or upward before its EPS.  Thus, "OPS" could be considered as a leading indicator of a company's true health.  Cisco Systems (NASDAQ: CSCO) is an example of this.  Despite the fact the Cisco's EPS had turned negative its "OPS" continued on to record growth for its most recent 12 months and in its most recent quarter Cisco's EPS also turned positive.  

[Back to Top]

OPS Rankings^TM FAQ's

Stock Diagnostics monitors a public company's Operational-cashflow Per Share  ("OPS") and assigns it an "OPS Ranking."   "OPS Rankings" are based on computer-generated, precise and objective calculations.   Rankings are upgraded with each company's quarterly financial report. Rankings are scaled 1 through 8, with number one (1), being the highest ranking and number eight (8), the lowest.  A "Rankings Suspended" status is given for all companies diagnosed with, "The EPS Syndrome^TM" during the most recent four quarters.  More on OPS Rankings^TM . . .

[Back to Top]

If a company was diagnosed with "The EPS Syndrome" prior to its last four (4) quarters you should check its current "OPS Ranking."

[Back to Top]

OPS Rankings^TM automatically suspends all rankings for a company, which has been diagnosed with The EPS Syndrome^TM within its last four (4) quarters.  See "The EPS Syndrome."

[Back to Top]

The EPS Syndrome^TM FAQS

Q.    What is The EPS SyndromeTM?

[Back to Top]

Q.  What if a company has been diagnosed with The EPS Syndrome^TM multiple times? 

If a company has been diagnosed in the last 4 quarters and it has multiple diagnoses in its history this is a very negative indication.  You might want to examine the company's "5 Years" chart to determine how a company has been doing for the last 5 years.    

[Back to Top]

The only way you can determine if a company has The EPS Syndrome^TM is to look at StockDiagnostics.com "Last 4 Quarters" chart or its "OPS Diagnosis" for that company.  Both of these will have shaded pink areas on the charts, which indicate a diagnosis of "The EPS Syndrome" within the Last 4 Quarters. StockDiagnostics.com has patents pending on their formula for determining "The EPS Syndrome."  These patents are based on algorithms, processes and technologies to detect "The EPS Syndrome."

[Back to Top]

There are two reasons why Enron and other companies may indicate positive quarters of "OPS" after they have been diagnosed with "The EPS Syndrome."  First, it is extremely likely that the management of a company with negative "OPS" is fully aware of it and is probably managing the company in a crisis mode.  This would be the equivalent of a person having a lot of bills with no money in the checking account.  The natural reaction is to cut costs, reduce debt and sell assets.  All of these actions or reactions generate positive "OPS."  Secondly, positive "OPS" following "The EPS Syndrome" diagnosis generally indicates that management is at least aware of the problem and is attempting to do something about it.

[Back to Top]

You need to look at the five year chart to see how many positive "OPS" twelve month periods have been reported following "The EPS Syndrome" diagnosis.

[Back to Top]

No. Stock Diagnostics discovered "The EPS Syndrome" and has filed multiple patents on the algorithms, formulas, and interfaces that allow its diagnoses to be displayed.

[Back to Top]

(1.)  Contact the company to determine if there is some explanation for its negative OPS^TM (Operational-cashflow Per Share).  Negative OPS^TM  is the catalyst that triggers StockDiagnostics.com patents pending formula to search for "The EPS Syndrome."
(2.)  Check insider-trading records to see if the company's executives are selling.

[Back to Top]

Diagnostic Charts FAQ's

By examining a company's 20 quarter chart you may find logical "OPS" patterns.  For example Eastman Kodak (NYSE Symbol: EK) has had a seasonal pattern of reporting negative "OPS" for its first fiscal quarter, five years in a row.  If Kodak reports negative "OPS" for any another fiscal quarters, this would be a strong indication that something may be wrong.  Should Kodak break this pattern by reporting positive "OPS" for a fiscal first quarter this would be a strong positive indicator. To get more experience in looking for patterns we suggest that you practice by looking up well-known companies such as Microsoft (MSFT), and Amazon (AMZN), etc.

[Back to Top]

Q.  Why examine the "5 Years" chart? 

By examining the "5 Years" chart you can determine the consistency and stability of a company's "OPS."  StockDiagnostics.com research has found that companies that report positive annual "OPS" are less risky as investments than those that report negative annual "OPS."  Another thing you can determine in examining the 5 Years chart is a company's "OPS" growth consistency.  Are the green columns on the chart increasing in height or are they decreasing.      

[Back to Top]

Q.  Why examine OPS^TM for the "Last 4 Quarters" instead of the most recent quarter?  

A majority of all companies are exposed to seasonality in their core businesses.  If you only look at the most recent quarter you may not get an accurate picture.  You can examine how well a company has been doing over its most recent 4 quarters by looking at the positive (green) or negative (red) summary.  This summary can be found under "Combined 4 Quarters" in the "OPS Diagnosis" box. 

[Back to Top]

Q.  Why examine the "Last 4 Quarters" chart? 

By examining the "Last 4 Quarters" chart you can determine a company's "OPS" momentum.  It could also give you an indication as to whether a company may or may not be seasonal.

[Back to Top]

Q.  What is the "4 Qtrs Combined" in the "OPS Diagnosis^TM" box?

The "4 Qtrs Combined" indicator in the "OPS Diagnosis" box summarizes or averages a companies "OPS" for its most recent 4 quarters to determine whether its "OPS" is a cumulative negative or positive total. 

[Back to Top]

Q.  What is the "OPS Count^TM"?

The "OPS Count" subdivides or ranks those companies with a positive "4 Qtrs. Combined" from top to bottom, based on the number of individual quarters that they reported positive "OPS."  The "OPS Count" then subdivides or ranks those companies with a negative "4 Qtrs. Combined" from top to bottom, based on the number of individual quarters that they reported positive "OPS."

[Back to Top]

Q.  What is a Fiscal Year end? 

A Fiscal Year end is a company's designated reporting date for its annual report.  A majority of public companies have fiscal years that coincide with a calendar year (December 31st).  However, some companies have fiscal years that do not end in December.  Microsoft Corporation (NASDAQ: MSFT) has a Fiscal year ending on June 30^th of every year. 

[Back to Top]

Data FAQ's

Most of the raw data that we utilize is in the public domain or reported to regulatory authorities. It is obtained from public company documents such as 10Qs, 10Ks and other filings.  Our proprietary, patent pending technology aggregates this raw data, breaks it down into its various components and then rebuilds it using formulas constructed by our world class data base technicians.

[Back to Top]

Q.  How often do you update new data?

The data is updated at least quarterly, or four times per year for each company.   

[Back to Top]

Q.  Is it possible to find the data on the "Last 4 Quarters," "20 Quarters," and "5 Year" charts.

Place your cursor over the bar graph of your choice, and the data point represented in the chart will appear.  Note: 4 Quarters of data, due to the fluctuation of shares outstanding (dilution), may not equal annualized numbers.

[Back to Top]

Cashflow FAQ's

Q.  What is cashflow? 

The word "Cashflow" has been diluted to mean many different things.  The only true measure of a company's cash flow is "Cash Flow From Operations" or Operational-cashflow.  It is the first of the three major sections found in a company's quarterly and annual Cash Flow Statements.

[Back to Top]

Cash Flow from Operations or Operational-cashflow shows all Income Statement and Balance Sheet changes that affect a company's flow of cash from its "daily," normal, or operational business activities.  It monitors Balance Sheet and Income Statement items that reflect a change in a company's cash position.  For example, a significant increase in a company's receivables, (could indicate difficulties in collecting invoices) or in its inventories, (could indicate product returns) are disclosed within a company's Cash Flow from Operations Report.  Cash Flow from Operations is a  "conservative" financial measure.  It resides within the Operating Cash Flow section of a company's CASH FLOW STATEMENT that is filed quarterly with the SEC.  There are three required accounting sub-sections in a Financial Statement;  "The Income Statement," "The Balance Sheet," and "The Cash Flow Statement."  Since the Cash Flow Statement reconciles the balance sheet and the income statement it is arguably the most important of all.

[Back to Top]

Q.  What is positive cashflow from operations?

Positive Cashflow From Operations (Operational-cashflow) occurs when a company is generating more cash than it is spending.  This enables a company to make investments or save its excess cash. This is analogous to your own situation when you save or invest your excess income.

[Back to Top]

Q.  What is negative cashflow from operations?

Negative Cash Flow From Operations (Operational-cashflow) occurs when a company is spending more cash than its core business producing.  This causes the company to utilize reserve investments or outside financing to make up the difference. This is analogous to you using your savings to pay your mortgage when you are out of work.

[Back to Top]

Q.  What is cashflow from financing?

Cash Flow from Financing is the cash flow that a company generates from its borrowings or from the sale or offering of new shares to the public.  It is the third of three sections that can be found in a company's quarterly and annual Cash Flow Statements.  When a company borrows money or sells stock to expand its operations that activity contributes cashflow to the business. In most cases that financing activity does not reflect the health of the basic business. Similarly, if you borrow $10 from mom to buy more lemons for your lemonade stand, that contributes more cash to your enterprise, but that cash does not come from actual lemonade sales.

[Back to Top]

Cash Flow from Investments is the cash flow that a company generates from its investments.  It is the second of three sections that can be found in a company's quarterly and annual Cash Flow Statements.  Companies often have passive holdings or investments that may appreciate, devaluate or gather interest. When those holdings are liquidated or altered in some way, that can create an increase or decrease in the total cashflow of the company, but in most cases not reflect on the health of the basic business.  Using the lemonade stand example again, if you took the $10 that mom originally loaned you to buy lemons and instead bought baseball cards that later sold for $12 you would have increased cashflow by $2 that would not have been any reflection on your core business of selling lemonade.

[Back to Top]

Q.  What is CFPS?

CFPS is an acronym for Cash Flow Per Share and it is generally derived from Cash Flow or what is more commonly known as EBITDA.  (See "What is EBITDA?" below.)    CFPS and EBITDA are not part of a company's Financial Statements. CFPS can be calculated a variety of different ways.  CFPS is normally calculated by dividing EBITDA (Earnings Before Interest Taxes Depreciation and Amortization) by the total number of shares outstanding. Both are manufactured "creative accounting" interpretations that present a company in the best possible light.  EBITDA's original use was for lenders to determine credit viability.  Today these interpretations are used primarily by companies and Wall Street analysts to promote stock to an unwary public.   Commonly, when EBITDA or CFPS are used in this way they are deceptively called "cash flow" or some form thereof.  This twisted use of the word "cash flow" means that the investing public can only rely on StockDiagnostics.com "OPS" (Operational-cashflow Per Share).  Unlike CFPS, EBITDA and other interpretive cash flow declarations StockDiagnostics.com "OPS" (Operational-cashflow Per Share) is the only one that is derived solely from the "actual" Corporate Financial Statements filed with the SEC.  Fundamentally, any cash flow calculations based on EBITDA or CFPS must be contrasted with StockDiagnostics.com "OPS" (Operational-cashflow Per Share).

Enron demonstrated to the public an example of this abusive use of cash flow or its derivatives; see table below.   Depending on the corporation or the Wall Street analyst, many other words, phrases or acronyms may be used to accomplish the same purpose;  "Cash Earnings," "Pro forma Earnings,"  "EBITD" [Earnings Before Interest Taxes and Depreciation], "Free Cash Flow," and "Pro forma Cash Flow," among others.   

Enron's OPSTM vs. CFPS for 2001
Quarter	OPSTM	CFPS
Q1 (3/31/01)	-$ .53	+$1.15
Q2 (6/30/01)	-$ .98	+$1.16
Q3 (9/30/01)	+$ .77	-$  .89

Enron's table shows the dramatic differences between StockDiagnostics.com "OPS" (Operational-cashflow Per Share) and CFPS, a manufactured, financial interpretation..  Our "OPS" (Operational-cashflow Per Share) for Enron was negative for the first two quarters and positive for the third quarter of 2001.  Enron's CFPS results were the exact opposite.  (See FAQ; Why does Enron have positive OPS^TM after it was diagnosed with The EPS Syndrome^TM?)

[Back to Top]

Q.  What is EBITDA?

EBITDA is an acronym for "Earnings Before Interest Taxes Depreciation and Amortization."  It is calculated by adding "selected" expense items such as Interest expenses, Income taxes, Depreciation and Amortization back into earnings or net income.  By adding "selected" expense items back into to a company's net income "more positive" earnings or CFPS numbers can be manufactured.  When utilizing EBITDA an analyst or CFO is actually stating, "This is what our earnings would have been if it were not for interest, taxes, depreciation and amortization.")  Because it is based upon earnings, EBITDA is subject to the same "creative" accounting inherent in many earnings reports.  EBITDA frequently does not reflect a company's true cash flow.  Like CFPS, EBITDA is a manufactured "creative accounting" interpretation that presents a company in the best possible light.  EBITDA's original use was for lenders to determine credit viability.  Today these interpretations are used primarily by companies and Wall Street analysts to promote stock to an unwary public.   Commonly, when EBITDA or CFPS are used in this way they are deceptively called "cash flow" or some form thereof.  This twisted use of the word "cash flow" means that the investing public can only rely on Stock Diagnostics' "OPS" (Operational-cashflow Per Share).  Unlike CFPS, EBITDA and other interpretive cash flow declarations, StockDiagnostics.com "OPS" (Operational-cashflow Per Share) is the only one that is derived solely from the "actual" Corporate Financial Statements filed with the SEC.   Fundamentally, any cash flow calculations based on EBITDA or CFPS must be contrasted with StockDiagnostics.com "OPS" (Operational-cashflow Per Share). 

 Enron demonstrated to the public an example of this abusive use of "cash flow" or its derivatives; see table below.   Depending on the corporation or the Wall Street analyst, many other words, phrases or acronyms may be used to accomplish the same purpose;  "Cash Earnings," "Pro forma Earnings,"  "EBITD" [Earnings Before Interest Taxes and Depreciation], "Free Cash Flow," and "Pro forma Cash Flow," among others.   

Enron's OPSTM vs. CFPS for 2001
Quarter	OPSTM	CFPS
Q1 (3/31/01)	-$ .53	+$1.15
Q2 (6/30/01)	-$ .98	+$1.16
Q3 (9/30/01)	+$ .77	-$  .89

Enron's table shows the dramatic differences between StockDiagnostics.com "OPS" (Operational-cashflow Per Share) and CFPS, a manufactured, financial interpretation..  Our "OPS" (Operational-cashflow Per Share ) for Enron was negative for the first two quarters and positive for the third quarter of 2001.  Enron's CFPS results were the exact  opposite.  (See FAQ; Why does Enron have positive OPS^TM after it was diagnosed with The EPS Syndrome^TM?)

[Back to Top]

Q.  Are OPS^TM and CFPS similar?

StockDiagnostics.com "OPS" (Operational-cashflow Per Share) and CFPS are vastly different financial measures.  "OPS" is derived from a corporations' actual quarterly or annual Cash Flow Statement.  CFPS, is derived from EBITDA (or one of its derivatives) which is a manufactured calculation that does not appear in a company's Financial Statement.  OPS is based on actual accounting measures and CFPS is based on "creative" accounting measures.  Fundamentally, any cash flow calculations based on EBITDA or CFPS must be contrasted with StockDiagnostics.com "OPS" (Operational-cashflow Per Share).  Enron presents a classic example of the stark contrast between "OPS" and CFPS; see table below.

Enron's OPSTM vs. CFPS for 2001
Quarter	OPSTM	CFPS
Q1 (3/31/01)	-$ .53	+$1.15
Q2 (6/30/01)	-$ .98	+$1.16
Q3 (9/30/01)	+$ .77	-$  .89

Enron's table shows the dramatic differences between StockDiagnostics.com "OPS" (Operational-cashflow Per Share) and CFPS, a manufactured, financial interpretation..  Our "OPS" (Operational-cashflow Per Share) for Enron was negative for the first two quarters and positive for the third quarter of 2001.  Enron's CFPS results were the exact opposite.  (See FAQ; Why does Enron have positive OPS^TM after it was diagnosed with The EPS Syndrome^TM?)

[Back to Top]

EPS FAQ's

EPS is an acronym for "Earnings Per Share," and it is calculated by dividing Net Income by the total number of shares outstanding.  This Net Income is commonly referred to as "Earnings."  Since Net Income or EPS does not reflect a company's true cash that it is generating from its business operations both are subject to "creative" accounting.   Therefore, both EPS and Net Income can be manufactured to present a company in the best possible light.  For many companies EPS, or net income reflects a company's "booked," but not cash profits from business transactions.  Just because business transactions have been accounted for does not necessarily mean that the money owed will ever be collected.  Take a lemonade stand for example.  If the thirsty kids down the block promise to pay later, for lemonade that they drink today, this transaction according to current accounting standards, would be "booked" as net income, or EPS.  This EPS is then reported to the public even though the money has not been collected and may never be paid.  Today many of these "creative accounting" interpretations are used in simple ways such as this, or in varying degrees of complexity by companies to primarily promote stocks to an unwary public.

Fundamentally, any reported EPS or Net Income must be contrasted with StockDiagnostics.com "OPS" (Operational-cashflow Per Share).   In the table below you can see how this contrast applied to Enron.

 

Enron's OPS vs. EPS for 2001
Quarter	OPSTM	EPS
Q1 (3/31/01)	-$ .53	+$  .46
Q2 (6/30/01)	-$ .98	+$  .43
Q3 (9/30/01)	+$ .77	- $  .87

Enron's table shows the dramatic differences between StockDiagnostics.com "OPS" (Operational-cashflow Per Share) and EPS, a manufactured, financial interpretation.  Our "OPS" (Operational-cashflow Per Share) for Enron was negative for the first two quarters and positive for the third quarter of 2001.  Enron's EPS results were the exact opposite. (See FAQ;  Why does Enron have positive OPS^TM after it was diagnosed with The EPS Syndrome^TM?)

[Back to Top]

Q.  Why is Wall Street so focused on quarterly EPS (Earnings Per Share)?

For many decades Wall Street has used quarterly EPS (Earnings Per Share) as the single most important indicator of that company's performance. In the early days of the stock market this approach served as a quick and helpful guide to a company's value. In recent decades, however, creative accounting, driven by merger and acquisition activity, has caused EPS to no longer serve as the best primary indicator of success. Wall Street's insatiable appetite for EPS (Earnings Per Share) growth has fostered and rewarded creative accounting.  EPS has become so important that stocks will often exhibit volatility on just pennies per share swings in earnings. Some of the largest public companies in the country are in financial difficulty because no one is paying attention to their other vital signs, such as "OPS." See, "The Earnings Game," Harvard Business Review, June 2001.

[Back to Top]

Q.  What can be done to limit exposure to misleading EPS (Earnings Per Share) figures?

StockDiagnostics.com believes the answer lies in a careful examination of earnings per share (EPS) figures in the context of "OPS" (Operational-cashflow Per Share).  We have analyzed the Cash Flow Statements and the Income Statements of thousands of U.S. publicly traded companies and have identified a series of conditions that constitute early warning signs of a company's health. We have named these conditions, when combined, "The EPS Syndrome," and have filed patents on their discovery.  Additionally, negative "OPS" (Operational-cashflow Per Share) constitutes evidence that a company should be closely monitored.   Fundamentally, any cash flow calculations based on EBITDA or CFPS must be contrasted with StockDiagnostics.com "OPS" (Operational-cashflow Per Share).

[Back to Top]

Q.  What are earnings?

Earnings are the booked profits from business transactions. Just because these business transactions have been accounted for does not necessarily mean that the money has been collected.  Take a lemonade stand for example.  If the thirsty kids down the block promise to pay you later for lemonade they drink today the potential profit from that could be "booked" and reported as earnings, but would not turn into cashflow from operations until the kids came back with the money.  Today many of these "creative accounting" interpretations are used in simple ways such as this, or in varying degrees of complexity by companies to primarily promote stocks to an unwary public.

[Back to Top]