February 6, 2003; High Greed Partnership Earnings May be Phony

Each of our three sell recommended partnerships issued a glowing press release telling of record results last year.  Each also made major acquisitions financed primarily with debt.  Because of the high debt, levered measures overstate value, as discussed above.  In the case of P/E it is even worse because, there really is no E as we see it.   

What the balance sheets of the partnerships do not show is that the general partner has a large equity interest in future earnings.  That interest may be half.  To reflect that interest, the book value of the limited partners’ interest should be written down and the general partner’s interest should be written up.  Taking those changes through the income statement would likely turn last year’s profits into losses.  It is past time, in our opinion, for the auditors to protest, rather than blindly bless, another year’s deception when annual reports are filed.

February 6, 2003 (posted Feb 9); Meter Reader: Low Fee, Low Debt Stands Out