Core Earnings Calculations: A Revised Approach 16 starting point. By including historical reviews of price trends along with the fundamental trends, you improve the scope of your review. When you recognize changes in price volatility, tests of support or resistance, and other important price trend alterations, you might also find a correlation to ongoing fundamental changes during the same period. The problem in connecting fundamental and technical is one of timing. You cannot use fundamental trends to track stocks day to day any more than you can use technical trends to identify long-term growth. The fundamental trends are more applicable for long-term analysis. Your fundamental ap- proach will be more accurate when it is based on post-core earnings adjustment numbers rather than on the unmodified GAAP numbers. To the extent that technical information helps to explain recent trends, it can be useful as well--not for current short-term market timing but as confirmation of what you see in the adjusted fundamentals. Endnotes 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. BusinessWeek online, 2002 earnings index. Shirley Kemp, "Core Earnings: A Better Measure," CFOweb, July 13, 2002. General Electric, investor information announcement, July 31, 2002. Helen Jung, "Microsoft's Stock Option End Shows Change," The Associated Press, July 10, 2003. FASB Statements No. 141 ("Business Combinations") and 142 ("Goodwill and Other Intangible Assets"), issued in June, 2001. Credit Suisse/First Boston, The Magic of Pension Accounting, September 27, 2002, p. 13. Ibid., page 18. Howard Schilit, Financial Shenanigans, McGraw-Hill, 2002, p. 14. Ibid., page 260. Martin Peers and Robin Sidel, "Days May Be Numbered for EBITDA Numbers," The Wall Street Journal, July 5, 2002. Pamela Stumpp, senior vice president, Moody's, "The 10 Critical Failings of EBITDA as a Principal Determinant of Cash Flow," July, 2000. Bear, Stearns & Co., Inc., "Pro Forma Earnings: A Critical Perspective," September 2002, p. 5 Ibid., pp. 5­6