Table: Smoke and Mirrors
Sectors where earnings may still be falsely inflated
CABLE TV, TELECOM, BROADCAST MEDIA
Use of EBITDA (earnings before interest, taxes, depreciation, and amortization) overstates profits by factoring out capital spending, taxes, and financing charges.
TECH, PHARMACEUTICALS, CONSTRUCTION, RETAILING
Overaggressive booking of sales before getting paid--especially under long-term contracts--inflates revenues. Murky accounting for manufacturers' incentive payments to retailers also hid costs.
TECH, FINANCIAL SERVICES
Heavy use of options, not deducted from earnings, understates labor costs.
Booking operating expenses as capital investments lets companies deduct the costs from earnings over several years, boosting current profits.