“Just how little is American industry making?” asks Floyd Norris in today’s New York Times.

“The Standard & Poor’s Corporation will release today its calculations of “core earnings,” as it defines them. That definition, which is subject to dispute, will make most companies look far worse than they have appeared.”

“The core earnings for the companies in the S.& P. 500 came to $18.48, S.& P. says, according to a copy of the announcement provided yesterday. That compares with operating earnings — the number Wall Street generally prefers to emphasize — of $41.58. And it compares with as-reported profits of $26.74.”

“Based on the value of the S.& P. of 989.52 at the end of the second quarter, the index was trading at a multiple of 54 times core earnings, a figure that has since declined to 47. By contrast, those using the operating income numbers see the multiple as 24 at the end of June, and 21 now.”

“There are three principal differences between the operating numbers and the new core numbers:”

“The value of options is treated as an expense in the core numbers. Few companies deduct the value of options they issue to executives, but they must disclose the value in annual reports, and S.& P. estimates the quarterly figures.”

“The performance of pension plans is treated differently. Under current accounting rules, companies can assume they earned money because their pension funds grew in value, even if the funds actually went down. The real numbers can be calculated from complicated disclosures in annual reports. S.& P. strips out such profits, but also does not give the companies credit for most real gains when pension funds do perform well.”

“The costs of restructurings are not added back in. Most companies, in computing operating earnings, do not consider one-time restructuring charges as expenses, although they do reduce profits as reported under generally accepted accounting principles.”