One of the most common lines I hear from investors is; earnings are easy to fudge but cash flow cannot be fudged. If you think this than you might want to consider reading "Creative Cash Flow Reporting
" . The book explains in depth about how the cash flow statement works, and numerous ways companiescan distort it, both legal and illegal. This book was written by Professors Charles Mulford and Eugene Comisky. Both authors have doctorates in accounting and have published several other books on “financial shenangians”.
Investors want to know in how a company is doing. The cash flow statement is invaluable to financial analysis, but investors have to be very careful. Unfortunately, there are many ways for a company to manipulate cash flow and many of these methods are actually legal, although many companies have crossed the line and used illegal methods to manipulate the cash flow. Investors looking over a company's financial report may get the erroneous impression that the company is doing better financially than it actually is. The cash flow is manipulated in such a way that it appears that the company has more money at its disposal for operating expenses than it actually does. Below are two examples from the book, although there are literally dozens of other examples, ranging from big blue chip stocks to microcap stocks.
In 2000, Enron reported it has over $4 billion in cash flow from operations; the real figure was over $1.5 billion less than the real amount. Enron's management were willing to do whatever it took in order to keep the operating cash flow figures high; this in turn boosted the company's stock value on the stock market. In 2002, Tyco International delayed paying its executives their first quarter bonus in order to boost the company's operating cash flow for that quarter. This small delay increased the company's operating cash flow figures by around $200 million. These are not the only companies that have manipulated the figures in order to provide shareholders and investors with high operation cash flow statistics.
"Creative Cash Flow Reporting: Uncovering Sustainable Financial Performance" explains what the generally accepted accounting practices (GAAP) are and how companies work around these by inflating figures and classifying expenses in a misleading way. The most common method for doing this lies in the way that expenses and income are classified. By classifying certain expenses under one 'umbrella' instead of another, the company can give investors the mistaken impression that the operating cash flow is greater than it really is. However, the company is well within its legal rights under GAAP to classify financial expenditures in this way.
Charles Mulford and Eugene Comisky not only detail how companies have manipulated cash flow and expenditures but also provide a simple method whereby a person can determine what the cash flow actually is and spot both positive and negative trends in a company's spending and overall performance. The book not only exposes the way that companies mislead the public regarding their expenditures but also gives clear cut guidance that investors can rely on to determine what a company's actual operating cash flow is and how the company stands financially.
Unlike many other accounting books, "Creative Cash Flow Reporting" catches the interest and is clear and focused. The authors are clearly experts in the field, and do a great job of exposing company's financial misdeeds and helping investors to spot telltale warning signs that a company is not doing as well financially as it seems.
This book is excellent for an intermediate to advanced investor. It is also not the type of book you want to read while laying on the couch. Reading the book and grasping the concepts requires the utmost concentration, as the book details some very clever accounting schemes. I have read numerous books on how to spot financial shenangians, and this is by far the best one for a more advanced reader. The book is really thorough (there is a chapter entirely devoted to free cash flow), and if you thought you understood the cash flow statement wait till you read the book.
To purchase the book on Amazon.com click on the following linkCreative Cash Flow Reporting: Uncovering Sustainable Financial Performance
Disclosure: I receive free books from book publishers and authors asking me to review them. In addition I sometimes request specific books that look interesting. I try to review the books that I think will be the most interesting. I have a material connection because I received a free copy of this book from the publisher. In addition I receive a small commission if you click on the above link and buy the book (or anything else) from Amazon.com It does not cost you a penny more. So I get a commission, Amazon gets a sale, and you get your book so it is a win for everyone.
http://www.valuewalk.com/
" . The book explains in depth about how the cash flow statement works, and numerous ways companiescan distort it, both legal and illegal. This book was written by Professors Charles Mulford and Eugene Comisky. Both authors have doctorates in accounting and have published several other books on “financial shenangians”.Investors want to know in how a company is doing. The cash flow statement is invaluable to financial analysis, but investors have to be very careful. Unfortunately, there are many ways for a company to manipulate cash flow and many of these methods are actually legal, although many companies have crossed the line and used illegal methods to manipulate the cash flow. Investors looking over a company's financial report may get the erroneous impression that the company is doing better financially than it actually is. The cash flow is manipulated in such a way that it appears that the company has more money at its disposal for operating expenses than it actually does. Below are two examples from the book, although there are literally dozens of other examples, ranging from big blue chip stocks to microcap stocks.
In 2000, Enron reported it has over $4 billion in cash flow from operations; the real figure was over $1.5 billion less than the real amount. Enron's management were willing to do whatever it took in order to keep the operating cash flow figures high; this in turn boosted the company's stock value on the stock market. In 2002, Tyco International delayed paying its executives their first quarter bonus in order to boost the company's operating cash flow for that quarter. This small delay increased the company's operating cash flow figures by around $200 million. These are not the only companies that have manipulated the figures in order to provide shareholders and investors with high operation cash flow statistics.
"Creative Cash Flow Reporting: Uncovering Sustainable Financial Performance" explains what the generally accepted accounting practices (GAAP) are and how companies work around these by inflating figures and classifying expenses in a misleading way. The most common method for doing this lies in the way that expenses and income are classified. By classifying certain expenses under one 'umbrella' instead of another, the company can give investors the mistaken impression that the operating cash flow is greater than it really is. However, the company is well within its legal rights under GAAP to classify financial expenditures in this way.
Charles Mulford and Eugene Comisky not only detail how companies have manipulated cash flow and expenditures but also provide a simple method whereby a person can determine what the cash flow actually is and spot both positive and negative trends in a company's spending and overall performance. The book not only exposes the way that companies mislead the public regarding their expenditures but also gives clear cut guidance that investors can rely on to determine what a company's actual operating cash flow is and how the company stands financially.
Unlike many other accounting books, "Creative Cash Flow Reporting" catches the interest and is clear and focused. The authors are clearly experts in the field, and do a great job of exposing company's financial misdeeds and helping investors to spot telltale warning signs that a company is not doing as well financially as it seems.
This book is excellent for an intermediate to advanced investor. It is also not the type of book you want to read while laying on the couch. Reading the book and grasping the concepts requires the utmost concentration, as the book details some very clever accounting schemes. I have read numerous books on how to spot financial shenangians, and this is by far the best one for a more advanced reader. The book is really thorough (there is a chapter entirely devoted to free cash flow), and if you thought you understood the cash flow statement wait till you read the book.
To purchase the book on Amazon.com click on the following linkCreative Cash Flow Reporting: Uncovering Sustainable Financial Performance
Disclosure: I receive free books from book publishers and authors asking me to review them. In addition I sometimes request specific books that look interesting. I try to review the books that I think will be the most interesting. I have a material connection because I received a free copy of this book from the publisher. In addition I receive a small commission if you click on the above link and buy the book (or anything else) from Amazon.com It does not cost you a penny more. So I get a commission, Amazon gets a sale, and you get your book so it is a win for everyone.
http://www.valuewalk.com/
