Maple Leaf Foods (MLF) is a Canadian manufacturer of meat and baked products, listed on the Toronto Stock Exchange. On the morning of July 27, 2007, the company issued a press release with its second-quarter financial results:
“Earnings per share from continuing operations before restructuring and other related costs, net of taxes, were SO. 11. Compared to S0.I2 last year, while year-to-date earnings per share on a comparable basis were $0.25 compared to $0.20 last year.”
On July 27 MLF’s stock price opened at $16.20 and closed at $15.94, and dropped further to $14.89 over the next three days.
Because the products made by MLF are widely available on supermarket shelves, the company is well known to the public. In fact, the company is so well known that one of your friends studying liberal arts approaches you and makes the following comments:
“As little as I know about the business world, I’m pretty' confident in saying that investors have no idea what they’re doing. Maple Leafs financial statements say that the company is doing pretty' well, and the company’s stock price tumbles!”
Another one of your friends who majors in finance comments:
“Accounting information is useless to the stock market. Maple Leaf proves my point. The accounting numbers have no relation with stock prices!”
Required:
Enlighten your friends by responding to the two comments above.