The TD Ameritrade crowd was buying up the Tesla shares. Tesla was headed into the elite S&P 500 companies. However, Tesla did not make it, despite accumulated profits over four quarters. The market is puzzled. The market needs to look deeper into Tesla’s financials. The old saying is that GM runs a pension plan and builds cars for a hobby. Tesla runs a company selling regulatory credits to other companies so that those companies can balance their emissions standards books. Tesla may be building cars for a hobby as well. The source of profits is as important as the profits themselves. There have always been twists to Tesla’s numbers.
In teaching MBAs, one of the key ethical topics in financial reporting is quality of earnings. Understanding how a company got to its earnings s perhaps more important than the earnings themselves. One-time currency-exchange-rate-boons do not a steady stream of earnings make. The clever application of GAAP and presentation of earnings breakdown are insights into ethics and character. Some retailers switch from calling out their sources of revenue to hide declines in their primary product sales. For example, Apple no longer calling out its phone sales or Coach no longer separating out outlet sales from store sales. How those earnings are presented can conceal the strength of the brand and the potential for earnings going forward. That too-clever-by-half approach in what goes into earnings never bodes well for the future.