Go to Jeff Salisbury LWGate Home Page.From: "Tom Worley" <stkguru@netside.net>
Subject: Re: [CANSLIM] Arthur Andersen
Date: Sat, 19 Jan 2002 20:29:01 -0500
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Hi Andreas, and David, The corruptness we are seeing with Andersen, one of the (well, was anyway) top five accounting firms in this country, one of the oldest (85 or so years), and one of the most respected names in the business up until a few years ago, is endemic to the greed mentality that says you must constantly increase business and profits. It's no longer sufficient to run a good, stable business, you have to grow. And in doing so, many companies venture outside their core business. In the case of Enron / Andersen, the accountants got into the business of "consulting", and thereby set up a conflict. The very people supposed to be watching the financial numbers became the experts at manipulating those same numbers. When a company starts reporting totally false information, there is little defense other than common sense. But if they only cheat and fudge the numbers a little, likely they can get away with it if the auditors cooperate. I hope two things come out of this horror story: a flat prohibition against using company stock in any 401K plan; and a legal prohibition against any auditing firm having any other business relationship with a firm they audit. Consult, or audit, but not both with the same or related company. As for using cash flow, or any cash flow ratio, I must admit I give it very little attention. Up until maybe 3-4 years ago, I rarely heard it even mentioned in any investment forum I visited. I credit The Motley Fool with raising awareness of this aspect, and agree with Andreas that I need to learn more about it, and use it more often. Tom Worley stkguru@netside.net AIM: TexWorley - ----- Original Message ----- From: "Andreas Himmelreich" <judgejimmy@web.de> To: <canslim@lists.xmission.com> Sent: Saturday, January 19, 2002 8:06 PM Subject: AW: [CANSLIM] Arthur Andersen > its not only Anderson or Enron, its also laws that give the possibiltiy > to give EPS numbers that are so far away from the cash flow number, that > the EPS number does not represent "a true and fair view" of the current situation > of the firm. You can not pay bills with EPS number, you only can pay > for personel and material if you generate enough cash flow to cover your costs > and to reach a profit margin and to take care of investments in you business. > > A very good way to see quickly if the EPS Reporting is fair or not --> > > Check if the Cash Flow is above or at least equal to the EPS numbers reported. > If it is even below, than its always good to be really critical ... > > Cash Flow Price Ratio should be always below the PE Ratio. A good sign is > if the Cash Flow to Price Ratio is half the PE Ratio (thats my rule of thumb). > > Even better, use free cash flow (the money that is not needed even after investments charged), > but this is not provided by any service I know ... > > I always wondered, why the investment community does not pay attention to the differences > between both numbers (PE and PCF Ratio). > But as far I can tell, a low Price Cash flow Ratio, which is well below the PE Ratio is > very seldem taken into account by the market and very seldem is used as "fuel" to > price up the stock price. > > So I only get really cautious if the PCF Ratio is not below the PE Ratio. > > But with Enron, I gues, even this would not have helped, due to the fact that they just reported > wrong numbers... > > See you > > Andreas > > > > -----Ursprungliche Nachricht----- > > Von: Dave Cameron [SMTP:dfcameron@yahoo.com] > > Gesendet am: Sunday, January 20, 2002 1:07 AM > > An: canslim@lists.xmission.com > > Betreff: [CANSLIM] Arthur Andersen > > > > > > --- Tom Worley <stkguru@netside.net> wrote: > > Tom writes: > > > > > Is it coincidence that Arthur Andersen is Enron's consultant / > > > advisor / auditor, and was also doing some of the same for Sunbeam? > > > (some Sunbeam execs just settled a shareholder class action lawsuit > > > for $15 million so they can concentrate on defending themselves > > > against fraud charges by the SEC). Sure, I'll pay you guys $15 > > > really big ones, but, hey, I'm still not admitting I did anything > > > wrong with the company financial reports. Maybe we should be buying > > > shares in companies making shredders?? This is the third big > > > financial scandal in recent years involving Andersen, and now > > > leading to cries from Congress for governmental regulation of > > > accounting firms. Great idea, let the politicians who rarely can > > > balance a budget, and invented the concept of off-book accounting, > > > regulate the accountants. > > > > This makes me wonder how "good" the earnings figures we get really > > are. It seems logical that given the number of firms that Arthur > > Andersen serves as the accountants/auditors, there have to be more > > out there that are fraudulent - and someone is benefiting. > > > > Furthermore, is it likely this behavior is unique to just Andersen? > > > > I don't mean to sound like a conspiracy type; but it does give me a > > dose of cynicism that we have to be even more diligent in our > > research. Enron was rarely, if ever, a CANSLIM stock, but the lesson > > is valuable nonetheless. > > > > I suspect the Enron situation could change some legislation. There > > are some big name trustee types demanding an investigation. I blame > > Andersen more than Enron. Andersen is "supposed" to be impartial; > > hence the auditing requirements. > > > > > > > > > > > ===== > > Dave Cameron > > dfcameron@yahoo.com > > > > __________________________________________________ > > Do You Yahoo!? > > Send FREE video emails in Yahoo! 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