Taking the Spin Out of Earnings Announcements

Public companies always want to put the best face on their quarterly financial results—that's just human nature.

But it doesn't mean an investor needs to be distracted by excessive 'spin' or downplaying of less favorable information that may in fact be critical to seeing the complete picture.

While the SEC filings (called 10-Qs for quarterly reports and 10-Ks for annual financial filings) are mandatory and there are specific rules about what must be reported in them, news releases are not mandated by law. In fact, companies have a great deal more flexibility about what they disclose in their earnings press releases. For this reason, investors should be cautious of earnings news releases that typically precede the financial reports filed with the Securities and Exchange Commission.

Consider this extreme example: Among the 30 companies that make up the Dow Jones industrial average,

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