By Kate Mooney, Kerry Marrer
Are there harmful pink flags within the monetary statements you've been receiving?
Do you know the way to identify indicators of difficulty within the monetary statements of businesses you've invested your hard-earned money in? are you aware what to seem for? how to define it? What to do approximately it? This helpful wisdom may well suggest the adaptation among retiring with a fit portfolio and anguish the devastating fallout of a scandal resembling the Enron debacle.
Sound Investing is your insurance coverage opposed to fraudulent monetary reporting. monetary accounting specialist Kate Mooney can provide transparent, easy-to-follow course on discovering purple flags in monetary statements, in addition to the stairs to take to behave on those indications and construct a superb wall of safety round your investments. You'll notice how to:
• Interpret the monetary disclosures of public companies
• discover clues to fiddling at the stability sheet
• observe fact at the source of revenue assertion and assertion of stockholder's fairness
• establish the ruse in notes to the monetary statements
• assessment facts within the annual file and SEC filings
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Additional info for Sound Investing: Uncover Fraud and Protect Your Portfolio
The executive can protect the shareholders from this decline in stock price by doing whatever it takes to meet the required target. If the target is an earnings target, the manager can speed up revenue recognition, delay expenses, or manage some reserve amounts. If the target is a debt level, the manager will arrange for off-balance-sheet debt, the kind that does not appear in the ﬁnancial statements. The rationalization is that the actions are taken to protect shareholders from declines in value, which neutralizes the bad aspect of the fraud.
When companies measure the value of the inventory they hold, accounting rules require the companies to compare the actual cost paid with the market value. The value on the balance sheet is whichever amount is lower. Net Realizable Value Another method of asset valuation is usually associated with the receivables on the balance sheet. Accounts receivable are the amounts that customers owe the business. The receivables are increased every time a credit sale is made and decreased every time a customer actually pays the cash for those debts.
Although research has shown that accrual accounting is a better predictor of future performance, investors still need cash ﬂow information to detect tricks that managers might use to manipulate accrual accounting performance results. Q UICK P OINTS : C ASH ✧ ✧ ✧ ✧ ✧ ✧ VERSUS A CCRUAL A company using cash basis accounting measures revenue at the amount of cash received from customers and measures expenses at the amount of cash payments. A company using accrual accounting recognizes revenue in the period in which it is earned, not when the customer pays.