Earnings Quality project 

Company: Nintendo Co., Ltd. (7974-JP)

Report on Earnings Quality. One of the key numbers reported by a financial reporting system is earnings. What exactly constitutes earnings is vigorously debated within accounting and by many outside accounting. Some believe that a number that is so subject to individual judgment is unreliable. Nonetheless, even a cursory glance at financial media makes it clear that earnings are ubiquitous and people rely on it extensively when it comes to any discussion about a firm’s performance. Accordingly, our first assignment is to analyze a firm’s earnings quality drawing on insights from the first half of the course.

1. Your task is to write about the red flag of how Nintendo consistently meet or beat earnings targets (guidance, analyst forecasts) that make you question Nintendo’s reported earnings. Too smooth/too consistent of an earnings progression (relative to economy, market); earnings and earnings growth are too consistent (irrespective of economic cycle and industry experience); smooth earnings in a volatile industry.

2. The report must include the supporting charts/tables/appendices (pull relevant data from FACTSET). You DO NOT need to write an introduction or overview about the company, please just write the accounting issue (consistently meeting earning target) directly. The paper does not have to be long, please describe the issue clearly.  You must use charts/tables/appendices or as the Amazon example, attach the related data to support the writing. 

3. *DO NOT mention or write about the Foreign currency translation issues/exchange rate, Cashflow VS Earnings, or variations between American and Japanese GAAP issues in the paper. 

You can look at the Amazon earning quality (PowerPoint slide) example about the consistently meet or bear consensus earning target as a guideline. 

The article,The Misrepresentation of Earnings, (Ilia Dichev, John Graham, Campbell R. Harvey, and Shiva Rajgopal) on page 31 (table 1 earning misrepresentation red flags) explains the concept of red flag of the consistency on meeting earing target in general. 

You must gather information about your company from EDGAR, FACTSET 

Please use the FACTSET and EDGAR as your fist priority and if you can’t find the related information about the earning target issues, please find the information from other reliable sources.

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