Contrary to popular opinion, managers have a degree of discretion in reporting operating cash flow. In this era, when the trustworthiness of reported earnings is in question, a reliance on as-reported operating cash flow is not the convenient substitute measure of financial performance that it might appear to be.
"Creative Cash Flow Reporting: Uncovering Sustainable Financial Performance" identifies how the routine application of either current accounting standards or other measures employed by some companies can yield misleading operating cash flow statements in financial analysis.
When adjusted using the methods described in this clear guide, operating cash flow is a more effective tool for uncovering reported earnings that have been increased through questionable means. Premature or fictitious revenue will result in growing receivables but not cash. Also, steps taken to misstate inventory might boost gross profit and net income but will not reflect cash flow. The same is true about aggressive cost capitalization and other creative accounting acts.
"Creative Cash Flow Reporting" demonstrates how to use adjusted operating cash flow to uncover earnings that have been misreported by even the most aggressive and fraudulent accounting practices.
Real-world practice is demonstrated through the results of a study designed to adjust the cash flow statements of the S&P 100 for the years 2000, 2001, and 2002. Many companies included in this sample had significant differences between reported and adjusted operating cash flow. The book is illustrated using hundreds of actual and recent company financial reports and applies recommendations to a large sample of actual companies.
"Creative Cash Flow Reporting: Uncovering Sustainable Financial Performance" is a must-have reference for serious readers of financial statements, including equity analysts and investors, credit professionals, serious individual investors, professional money managers, and anyone interested in uncovering true sustainable financial performance.