With the launch of the latest earnings season, here is a periodic reminder that number manipulation is very common in the corporate world, and it can have serious consequences even when everything is perfectly legal. Some examples of number manipulation have existed for decades.

When Jack Welch ran General Electric from 1981 to 2001, he was determined to record an increase in earnings per share every consecutive quarter. Of course, business does not work that way, as fluctuations in economic activity and competitive conditions inevitably introduce some volatility in earnings.

However, GE division managers felt intense pressure to do their part in maintaining the illusion of a straight and rising earnings per share line. Consequently, if it seemed certain that their earnings would fall as the quarter end approached, they sometimes solved the problem by hastily acquiring another company.

Under accounting rules, the division could add the acquired company's earnings for the full 3-month period to its current earnings, enabling it to meet its imposed target from Welch. Of course, this was not a recipe for long-term financial stability. General Electric saw its market value decline by about 74% in the 20 years after Welch stepped down.

More recently, concerns arose about accounting practices that may have supported the earnings of IT services provider Kyndryl Holdings when the SEC requested documents last February.

This came 10 months after Gotham City Research published a report indicating that the company's auditor had noted a material weakness in reporting related to revenue recognition. Gotham also pointed to indicators such as average receivables collection period and capital costs, which were far removed from those of comparable companies.

The company's stock fell 55% on the day the SEC request was announced. Number manipulation is another way to falsify and steer them to serve management's interests. In 2001, drug manufacturer Bristol-Myers Squibb gave its distributors discounts as incentives to buy its drugs at a faster pace than necessary to meet pharmacy prescriptions.

This action did not result in increased sales, which would have been a logical motivation for offering the discount. Instead, it merely shifted sales from a future period to the present to inflate current earnings.

Bristol-Myers Squibb's practices were exposed in 2002 when management announced that first-quarter earnings per share would be about 20% below analyst expectations. That day, the stock fell as much as 14% in after-hours trading. About a decade later, semiconductor manufacturer M/A-COM Technology Solutions Holdings found itself in a similar situation. In 2015, the company met analyst expectations for first-quarter revenue, but that was with the help of an accounting change.

MTSI changed its revenue recognition method from recording it when distributors completed final sales to end users, to recording it upon sale to distributors, who accounted for about a quarter of its total sales.

Suspicions arose about channel stuffing, and these financial manipulations ultimately backfired on the company. MTSI reported declines in revenue, gross margin, and adjusted earnings per share for the third quarter of 2015, and issued fourth-quarter guidance that was a third below the lowest analyst estimate. Its stock fell 20% at the open the next day. No charges of legal violations were filed against the companies in any of these cases, but the consequences were severe.

Creative License

Last June, a new example emerged of a company making progress toward a stated numerical target using a questionable tactic. The story begins with the merger agreement between Paramount Global and Skydance Media in July 2024.

Many Hollywood screenwriters expressed concern about this merger in the entertainment industry, noting that it threatens to reduce job opportunities available to them. In this context, Paramount announced it would double its releases from 8 films in 2025 to 15 films in 2026.

Moving to last month, Paramount released the film 'Jackass: The Best and the Last,' the final installment of a film series featuring a troupe of performers doing stunt shows. A large part of the film consists of reused footage from previous 'Jackass' films, plus a limited number of new scenes.

Paramount produced this film at an estimated cost of only $10 million. To put that number in context, among all planned or completed films for 2026 from the five major film studios - Columbia (Sony), Paramount, Universal, Warner Bros., and Walt Disney Studios - for which production budget estimates are available on IMDb, the average budget was $80 million, while two films tied for first with a budget of $250 million.

Only 4 out of 19 films in this sample had estimated costs below $30 million, and the lowest film, excluding 'Jackass: The Best and the Last,' had a production cost of $18 million.

Based on these estimates, Paramount was able to achieve one of its 15 film release targets by spending roughly half of what it spent on its previous least expensive film, while providing few new job opportunities for creators.

To be clear, this did not violate any law, nor was it tied to any profit target. Moreover, it is impossible to know whether the justification for this specific film was related to the stated target, or whether the low-cost production was part of a broader strategy. But regardless of the motive, the company was able to show progress toward an announced goal while ignoring its substance. All these examples remind us of the need to examine facts closely whenever a company claims an achievement.

College athletics recruiters would not give a scholarship to a high school runner who set a state record by moving the finish line closer to the start. Investors should be extremely cautious when spending their money.

Publisher of the magazine 'Income Stock Investor.' Former board member of the Institute of Chartered Financial Analysts, advisor to the Board of Governors of the Federal Reserve, and writer for Reuters.