A Very Quick Look at Barclays' Earnings

LONDON -- Right now I'm trawling through the FTSE 100 and double-checking for blue chips that may be flattering their profits.

You see, many companies these days report "underlying" earnings, which are calculated by excluding costs the firm deems to be "exceptional." Trouble is, some companies are more cavalier than others when it comes to sweeping awkward expenses away from the headline figures.

Today I'm looking at Barclays (LSE: BARC.L  ) (NYSE: BCS  ) to see if its reported earnings have been distorted significantly by exceptional, one-off, or unusual items. I've extracted the following statistics courtesy of S&P Capital IQ:

Year to 31 December 2007 2008 2009 2010 2011
Profit before unusual items (in millions of pounds) 6,239 2,848 3,001 6,194 6,358
Restructuring charges (in millions of pounds) - - (61) (125) -
Goodwill impairment (in millions of pounds) - 2,294 25 (114) (597)
Asset writedowns (in millions of pounds) (16) (30) - - (12)
Other unusual items (in millions of pounds) - 24 1,620 110 130

While annual figures can provide some insight into how a business has performed, I reckon looking back over several years provides a better view of possible problems in relation to one-off costs.

So between 2007 and 2011, my stats tell me Barclays reported cumulative profits before exceptional items and tax of 24.6 billion pounds. However, aggregate exceptional costs came to 3.2 billion pounds -- equivalent to a notable 13% of cumulative "underlying" profits.

I must admit that I was expecting to find a much higher incidence of one-off items when looking at Barclays' financials. The accounts of banks are notoriously complex, and the last few years have been somewhat, er, turbulent. Yet, there are only a few items of real significance here.

The 2.3 billion pound gain in 2008 relates to an exceptional profit recognized after buying the North American assets of the now defunct Lehman Brothers. The 1.6 billion pound gain the year after mostly relates to a revaluation upwards of the bank's own debt.

However, a closer inspection of recent annual reports suggests that my database source for this series may have had trouble interpreting Barclays' figures. For example, the 1 billion pound charge taken to cover PPI compensation costs last year does not appear in this analysis. So it appears even computers have trouble deciphering the annual accounts of banks!

Perhaps that's why Neil Woodford, the U.K.'s leading equity income fund manager, decided to sell out of banks a few years ago. It proved to be an excellent decision, as Woodford's portfolios have thrashed the FTSE 100 during the 15 years to 2011. This exclusive Motley Fool report -- which can be downloaded free today -- reviews his favorite blue-chip shares for 2013 and beyond.

Are you looking to profit from this uncertain economy? "10 Steps to Making a Million in the Market" is the very latest Motley Fool guide to help Britain invest. Better. We urge you to read the report today -- it's free.

Further Motley Fool investment opportunities:

Stuart Watson owns no shares of the companies mentioned. The Motley Fool has a disclosure policy.
We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (1) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 30, 2012, at 11:01 AM, Teacherman1 wrote:

    I would be a buyer at $9.00 or less.

    They have a lot of "adjusting" to do.

    JMO and worth exactly what I am charging for it.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2083948, ~/Articles/ArticleHandler.aspx, 10/22/2016 12:14:28 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 2 hours ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:03 PM
BCS $8.92 Up +0.01 +0.11%
Barclays CAPS Rating: ****