Lying with Figures (Student Version)

Maybe it’s just coincidence, but there seems to be a run of particularly good humorous posts on finance-related matters.

This one, “Adjusted GPA on a Pro Forma Basis,” from Long or Short Capital, is on the desirability of students learning to misreport, ummm, manipulate, ummm, position data, via how they present their GPAs on their resume.

Of course, this suggestion is consistent with the prevailing condition in our society that there is no objective reality. We are supposed to believe what the president tells us about Iraq, the deficit, his health care plan, and now the Iranians, whether or not it has any factual anchor. And numbers are merely another way to tell a story. Accounting, thanks to the World Coms and Enrons of this world, has become a creative profession (although the death of four of the former Big Eight has put a damper on that trend). So why shouldn’t undergraduates practice what appears to be a key skill in modern life?

Recently, recruiters at top universities and college administrators alike have recognized a growing trend in the student job market, namely the adoption of “adjusted” GPA figures. It appears that students have realized what investment bankers have known for years: if you don’t like a number, you can change it.

Say you are an investment banker at a large Wall Street Firm, like Silverman Sachs or Layman Brothers, and you are trying to syndicate Theoretical FCF Corp’s bonds. The problem is that Theoretical FCF Corp seems to lack any actual cash flow and will almost certainly never actually pay down any debt. What do you do? Just pro forma their EBITDA to what their cash flow would be if they actually generated cash flow, as you kinda expect they may sometime in the future. And if that doesn’t get your bond customers to a number that makes them want to write big tickets, adjust that number for “one-time” expenses like “bad debt expenses”, “restructuring charges” or the vague bnut powerful “fees”. This is how you get it done when syndicating debt or selling IPOs.

Now for a student, their GPA is basically the equivalent of a firm’s 4 year trailing cash flows. The number itself carries huge weight in job interviews, yet for decades students have reported GPA exactly as it appears on their transcript. While entirely accurate, this is a huge mistake. Job applicants are now realizing that adjusting their GPAs can give a more accurate misrepresentation of their performance and expected future production.

Why should an employer hire an average of you over the last four years, when what they should be interested is a real misrepresentation of what you could be now if not for certain events? Here are some ways students are making themselves look better on paper:

1. Add-Backs for non-recurring GPA deductions, such as getting drunk at a final, or anything that happened freshman year
2. Pro forma GPA for dating someone smart or at least someone who wears glasses in the morning.
3. Projected GPAs levels for future years using the same class load. Surely a student would be more efficient in those classes if the student took them again. Thus the student should adjust their GPA to better match their future production.
4. And the most common move, arbitrarily making their GPA a 3.6 – good enough to get by, but not good enough to raise suspicion.

Recommendation: If you are serious about a job in finance, it’s important to signal that “you get it” before you even arrive. We heartily endorse the use of adjusted and PF GPAs for this reason. Remember, it’s noy what you did or will do, but what you can convince people you did or will do.

The author neglected to include “Restated GPAs,” for passing courses that the student failed the first go-round.

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