AAPLs to AAPLs

I've previously discussed the fact that apple's P/E has gone down substantially over the last couple of years, yet the company is in a much better position than it was even just two years ago. I made the suggestion that since the P/E ratio is low, the stock is very cheap and it's ridiculous to think that its trading at a lower P/E than two years ago. Perhaps this is the reason:




http://remington-work.blogspot.com/2009/09/accounting-shift-would-lift-tech.html



Dr. Harvey passed out this article in class and it basically says that a 4th qtr 2009 accounting rule change required cell phone companies to take profits at the time of sale. Previously, they were required to spread it out over 2 years (beacause the phone included software, and software takes time to "deliver" because of software updates, maintenence, etc).



Since Apple no longer spreads out the profits from their iPhone over two years, their earnings today appears inflated as compared to previous years (assuming iPhone sales are increasing). Other, smarter investors picked up on this and that's why the price of the stock didn't skyrocket when the new rule took affect and earnings jumped. So comparing the P/E of Apple today and the P/E of Apple 2 years ago isn't Apples to Apples.