In its fiscal second quarter ended last October, for instance, Heinz posted earnings of 75 cents a share, compared with 60 cents in the year-earlier period. But the most recent quarter reflected a gain of 24 cents per share from the sale of its confectionery business. Without that gain, earnings dropped 15 percent. Here, it's especially useful to compare the accounting policies of companies in the same industry. If you're a long-term investor, you'd probably be most comfortable with conservative practices.
Some companies record a sale upon completion of a certain percentage of the work.
In the computer industry, many firms book sales when a piece of equipment is shipped out of a plant. But Storage Technology Corp. , a Louisville, Colo.-based maker of data storage devices, has won praise for taking the more cautious approach of waiting until its customer accepts the product, usually after installation. Now look at how costs are accounted. Instead of immediately charging certain costs to earnings, some companies defer, or capitalize. If so, that could create swings in earnings.