With so many recent financial frauds going undetected, investors have increasingly questioned the value of the accrual-based figures shown on the Income Statement. Time and time again, companies have duped investors by recording revenue too soon or hiding expenses, leading some to conclude that earnings can be manipulated and therefore they should put more faith in the “purer” measure of cash flow from operations.
While that’s certainly a step in the right direction, be extra careful to look both ways as you cross the street from accrual-based earnings to the cash flow numbers. The reasons for exercising this caution will become abundantly clear as you read through this part of the book.
In Part Three, we showcase three specific types of Cash ...
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