In this module, I look at the cash flow statement. I am constantly surprised at how little real knowledge and understanding >90%+ of analysts on the sell-side and >70% of analysts on the buyside display when looking at a cash flow statement. I am not exaggerating – this is central to any business valuation but most analysts do zero to very little analysis of the cash flow statement.
I also briefly discuss some of the differences between IFRS and US GAAP which are quite critical in identifying cash flow obfuscation.
I therefore introduce the topic by taking a few of the examples in our Forensic Accounting Course of common ways the cash flow statement can be manipulated to deceive unwary investors.
I discuss the flaws in the structure of the cash flow statement, offer some tools to help with the analysis and explain how I approach the analysis, with a process which ensures that a proper understanding of the cash generation capacity of the business has been produced.