) --





(SIRI) - Get Report


The New York Times

(NYT) - Get Report

have had their share of detractors during the past year.

Most of the criticism has been valid. All have had problems with debt and sales that threatened to kill equity holders. While none are out of the woods yet, Palm, Sirius and The New York Times posted better-than-expected results in the most recent quarter, emboldening bulls and making bearish arguments weaker.

So-called earnings quality is important to note when deciding to buy or sell a stock. The

accruals ratio

, described in a July story, can quantify earnings quality. The theory behind the metric is that earnings can be manipulated by accounting practices that take into account revenue too early and defer costs that should be expensed. The effect is artificially high revenue, lower costs and, thus, increased profits.

On the next page is Sirius' surprising results.


In Sirius' case, the company made headlines by finally averting a loss. While analysts projected a loss of 2 cents a share, Sirius effectively broke even for the quarter. But was that due to tricky accounting or actually improving conditions?

The rabid community of Sirius fans will be happy to hear that earnings for the third quarter show no evidence of manipulation. With an accruals ratio of minus 1.4%, Sirius actually shows a slightly conservative shift from the previous quarter. As such, there is nothing to suggest that aggressive accounting is among Sirius' sins, even though many investors are concerned about debt and the business model as a whole.

The Gray Lady, it seems, is a straight shooter. See the following page.

The New York Times:

The same is true for the Times. With a massive outperformance in the third quarter, some may assume the Gray Lady did some fancy math. With an accruals ratio of minus 6.4%, there was no slippery accounting. For the Times, everything was above board -- although still unattractive. Most of the improvement came from slashing expenses through layoffs and the like, not stellar growth.

Palm has important financial figures coming out. Click to the next screen to find out.


A competitor of

Research in Motion




(AAPL) - Get Report

, Palm surprised with a loss of 10 cents a share in the quarter ending in August, less than half that expected by analysts.

Analyzing Palm is tricky due to the release of the Pre smart phone, which has greatly increased deferred revenue, and the company's negative equity position. After cutting through the clutter, however, Palm's earnings appear to be of high quality. The telling figure will be the accruals ratio in the three months through November, which will be easier to compare with the previous quarter's.

-- Reported by David MacDougall in Boston.

Prior to joining Ratings, David MacDougall was an analyst at Cambridge Associates, an investment consulting firm, where he worked with private equity and venture capital funds. He graduated cum laude from Northeastern University with a bachelor's degree in finance and is a Level III CFA candidate.