Journal Publishing Howard-Tilton Memorial Library's Homepage Tulane University's Homepage

User Profile

Lurn Summit Review

Bio Statement Lurn Summit Review  Some such transactions may be in the normal course of business and also good as they may protect the company against adverse developments. But some may be deliberately created for manipulation purposes. For example, Enron created off-balance entities to hide critical information, which ultimately led to its collapse.

Non-recurring Expenses, Other Income, etc. are some of the other areas, where companies have been known to use 'creative' accounting.

Therefore, instead of looking at book-profits and EPS, one should concentrate on the cash-flow statements, which are relatively difficult to manipulate. For example, a company can show high sales and profits by selling to some related companies. But these are not actual sales and this money is not likely to be realized (or company may even show sales returns in the next financial year). So, despite higher sales, the cash flow statement will be negative as there in no cash inflow. This is one sign that company might be experiencing problems.

One should also look at the trends. The negative cash flow may be temporary due to high R&D expenses or some other investment. This is good for the long-term growth and hence not a bad sign.

Reporting Copyright Infringement

If you believe that your copyright-protected work has been posted without authorization by any of our journals or to report copyright infringement on Tulane websites, please notify:  Hunter Ely, Tulane University Information Security Officer at  Hunter Ely is the agent designated under the Digital Millennium Copyright Act, P.L. 105-304.