What's going on?

Engines are apparently roaring at Rolls-Royce, with the UK-based industrial conglomerate reporting annual earnings on Wednesday that soared above market expectations. Shares of the firm skyrocketed over 11% on the news!

What does this mean?

After experiencing some turbulence a couple of years ago, Rolls got a new CEO in 2015. He set about making the aerospace giant more aerodynamic, shrinking its workforce and restructuring parts of the sprawling business.


There have been bumps along the way, but Rolls reported on Wednesday that its profits in 2017 jumped 25% to �1.1 billion, while its �cash flow� � the amount of money a company takes in or gives out � came in positive around �250 million (the CEO is targeting �1 billion by 2020). Looking ahead, however, Rolls said that there may be more cuts to come � and perhaps even a sale of its unprofitable non-military marine business.

Why should I care?

For markets: Not everyone�s drinking at the stock party.

Even though investors seem to like that Rolls� cash flow improved in 2017, the company�s overall debt also doubled in that period. On top of that, the manufacturer is having to spend hundreds of millions fixing a whole batch of faulty jet engines that it installed into Boeing planes � which won�t exactly help Rolls hit that cash flow target.

The bigger picture: New accounting rules will likely paint many large companies� earnings � including Rolls� � in a different light. �

When you�re a big conglomerate like Rolls-Royce, you spend a lot on research and development � but it�s an investment, and companies expect to earn that money back eventually. Those investments (and others) are sometimes reported to companies� investors as �capital assets� rather than �costs� like wages or rent, making them seem more profitable. Starting this year, however, new rules designed to better ensure that companies can�t appear deceptively cost-efficient will mean that Rolls has to be stricter about making �reasonable� forecasts of future income from its investments.