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Successful methodology for identifying earnings-related reporting indiscretions
Creative Cash Flow Reporting and Analysis capitalizes on current concerns with misleading financial reporting on misleading financial reporting. It identifies the common steps used to yield misleading cash flow amounts, demonstrates how to adjust the cash flow statement for more effective analysis, and how to use adjusted operating cash flow to uncover earnings that have been misreported using aggressive or fraudulent accounting practices.
Charles W. Mulford, PhD, CPA (Atlanta, GA), is the coauthor of three books, including the bestselling The Financial Numbers Game: Identifying Creative Accounting Practices. Eugene E. Comiskey, PhD, CPA, CMA (Atlanta, GA), is the coauthor of the bestselling The Financial Numbers Game: Identifying Creative Accounting Practices.

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CREATIVE cash flow REPORTING
Uncovering Sustainable Financial Performance

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.

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Foreword.  
Preface.
 
About the Authors.
 
1. Seeking Sustainable Cash Flow.
 
An Artificial Boost to Operating Cash Flow.
 
Classifying Cash Flow.
 
Sustainable Cash Flow.
 
Creative Cash Flow Reporting.
 
Ignoring the Statement of Cash Flows.
 
Cash Flow Analysis.
 
Plan of This Book.
 
Summary.
 
2. Structure of the Statement of Cash Flows.
 
Historical Background.
 
Arrival of the Statement of Cash Flows.
 
Non-GAAP Measures of Cash Operating Performance.
 
International Differences in the Statement of Cash Flows.
 
Summary.
 
3. Is It Operating or Investing Cash Flow?
 
Investing Cash Flow.
 
GAAP Flexibility: Is It Operating or Investing Cash Flow?
 
Beyond the Boundaries of GAAP.
 
Summary.
 
4. Is It Operating or Financing Cash Flow?
 
Financing Cash Flow.
 
GAAP Flexibility: Is It Operating or Financing Cash Flow?
 
Beyond the Boundaries of GAAP.
 
Summary.
 
5. Income Taxes and the Statement of Cash Flows.
 
Tax Reporting Essentials.
 
Classification of Tax-Related Cash Flow.
 
Nonrecurring Income Tax Cash Flows.
 
Summary.
 
6. Nonrecurring Sources and Uses of Operating Cash Flow.
 
Characteristics of Nonrecurring Items of Operating Cash Flow.
 
Examples of Nonrecurring Cash Sources and Uses.
 
Management Identification of Nonrecurring Operating Cash Flow.
 
Locating Nonrecurring Items of Operating Cash Flow.
 
Cash Flow Tracking.
 
Summary
 
7. Measuring Sustainable Operating Cash Flow.
 
Sustainable Operating Cash Flow.
 
Calibrating Operating Cash Flow Adjustments.
 
Measuring Sustainable Operating Cash Flow.
 
Completed Sustainable Operating Cash Flow Worksheet.
 
Frequency and Size of Adjustment Items.
 
Summary.
 
8. Using Operating Cash Flow to Detect Earnings Problems.
 
Relationship between Earnings and Operating Cash Flow.
 
Earnings Supported by Artificial Means.
 
Excess Cash Margin.
 
Summary.
 
9. Analyzing Operating Cash Flow.
 
Cash Flow Analysis Statement.
 
Using the Cash Flow Analysis Statement.
 
Cash Flow Drivers.
 
Closer Look at Core Operating Cash Flow.
 
Summary.
 
10. Understanding Free Cash Flow.
 
Uses of Free Cash Flow.
 
What Is Free Cash Flow?
 
Free Cash Flow to Common Equity: A Closer Look.
 
Capital Expenditures.
 
Acquisitions and Free Cash Flow.
 
Summary.
 
Glossary.
 
Subject Index.
 
Company Index.

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