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Smoothing Earnings

Definition:

Companies like to “smooth” their earnings, maintaining steady and predictable growth so that investors on Wall Street aren’t caught by surprise by a sudden spike either positive or negative.

Book Excerpt:

(Excerpts from Financial Intelligence, Chapter 11 – Assets)

You might think that Wall Street would like a big spike in a company’s profits – more money for shareholders, right? But if the spike is unforeseen and unexplained – and especially if it catches Wall Street by surprise – investors are likely to react negatively, taking it as a sign that management isn’t in control of the business.

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