Tuesday, July 24, 2012

PEU Economic Net Income Redefined

Private equity underwriters (PEU's) use economic net income, a nonstandard measure when reporting earnings.  It purports to reflect profitability by estimating "profits" from sold and unsold investments.  Blackstone adjusted the vaporware number, in part to show greater earnings.  WSJ reported:

There is one thing to look out for in the firms’ 10-Qs this time around: economic net income, a widely-used performance benchmark for alternative asset managers. For the second quarter, Blackstone excluded the provision for income tax in its ENI, so that the number reflected economic income. It did, however, account for the impact of actual income tax.
Someone close to the matter said Blackstone made the change in part because of advice of analysts who cover the firm. The analysts said inclusion of tax provision inflated the taxes, and that including only the actual tax better reflects the firm’s true earnings, the person said.

Are PEU analysts now setting accounting standards?