There are several methods that the Whirlybird Chief Executive Officer (CEO) can apply to reduce quarterly earnings, which might reduce the stock price before the announcement of the proposed stock repurchase. The first recommended method is the use of non-GAAP measures. GAAP measures represent the accepted accounting requirements, procedures, and rules that publicly-traded companies are supposed to adhere to during the compiling of monetary statements. The company can apply non-GAAP fiscal measures in reducing the stock price by presenting income with the exclusion of one-time expenditures (Harvey, 2019). The other method that can be applied in reducing the stock price is through providing financial statements that incorporate solid quarter earnings but with soft revenues. The week revenues might create an implication of looming financial struggle that the company might face increased the rate of stock sales, which in turn reduces the stock price for the company to repurchase (Deporre, 2018). The company can also use the cash flow and free cash flow method to reduce the stock price before the announcement of the proposed stock repurchase. Most traders and analysts monitor the cash move, and free money move metrics in stock purchasing decision-making. The company can reduce the cash move, which is the quantity of money transferred out and in within an interval. Reducing the cash move will indicate that the company has low optimism in terms of money move and therefore has insufficient liquid belongings, which can cause panic, resulting in reduced stock price.
If the CEO approached you recommending a reduction in current quarter earnings, how would you respond?
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The reduction of quarterly earnings would be a good idea to be implemented before the announcement of the proposed stock repurchase. Since stock prices move based on the expectations of the market, the quarterly earnings reduction with more than 30% of the market expectation could result in lower share prices (Ong, 2017). However, decreasing the quarterly early by 10% would increase stock prices if the decline expectations are much more significant. Therefore, critical evaluation of the market expectation should be conducted before reducing the current quarter earnings.
References
Deporre, J. (2018). Smart Tips and Crafty Tricks for Trading During Earnings Season . Real Money. https://realmoney.thestreet.com/articles/04/14/2018/smart-tips-and-crafty-tricks-trading-during-earnings-season
Harvey, A. (2019). Tricks Companies Use During Earnings Season . The Entrepreneur Fund. https://theentrepreneurfund.com/5-tricks-companies-use-during-earnings-season/
Ong, H. (2017). How do quarterly earnings reports affect stock prices? INQUIRER.net. https://business.inquirer.net/229677/quarterly-earnings-reports-affect-stock-prices
