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Today’s Topics

Today’s Topics. Cash Flow Shenanigans Metrics Shenanigans. Cash Flow Shenanigans. CFS #1: Shifting Financing inflows to Operating inflows CFS #2: Shifting Operating outflows to Investing outflows CFS #3: “Inflating” Operating inflows through normal but infrequent ops

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Today’s Topics

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  1. Today’s Topics • Cash Flow Shenanigans • Metrics Shenanigans FORENSIC ACCOUNTING - BA124 - 2011 Slide 19-1

  2. Cash Flow Shenanigans • CFS #1: Shifting Financing inflows to Operating inflows • CFS #2: Shifting Operating outflows to Investing outflows • CFS #3: “Inflating” Operating inflows through normal but infrequent ops • CFS #4: “Inflating” Operating inflows through normal operations FORENSIC ACCOUNTING - BA124 - 2011 Slide 19-2

  3. CFS #1 • Bank borrowings as CFO • Sale of receivables as CFO • Sham sale of receivables as CFO FORENSIC ACCOUNTING - BA124 - 2011 Slide 19-3

  4. CFS #2 • Boomerang transactions • Capitalization of operating expenses • Treating inventory purchases as investing activities FORENSIC ACCOUNTING - BA124 - 2011 Slide 19-4

  5. CFS #3 • Inheriting cash flows via acquisition • Acquisition of customers or products • Structuring a divestiture to benefit operating cash flows FORENSIC ACCOUNTING - BA124 - 2011 Slide 19-5

  6. CFS #4 • Paying vendors more slowly • Collecting from customers more quickly • Purchasing less inventory • Limited disclosure of one-time benefits FORENSIC ACCOUNTING - BA124 - 2011 Slide 19-6

  7. Metrics Shenanigans • MS #1: Misleading metrics that overstate performance • MS #2: Distorting metrics that avoid bad news FORENSIC ACCOUNTING - BA124 - 2011 Slide 19-7

  8. MS #1 • Proforma revenue metrics • Proforma earnings metrics • Proforma cash flow metrics FORENSIC ACCOUNTING - BA124 - 2011 Slide 19-8

  9. MS #2 • Distorting A/R metrics • Distorting inventory metrics • Distorting financial asset metrics • Distorting debt metrics FORENSIC ACCOUNTING - BA124 - 2011 Slide 19-9

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