Re: AW: [CANSLIM] Arthur Andersen

From: Spencer48@aol.com
Subject: Re: AW: [CANSLIM] Arthur Andersen
Date: Sat, 19 Jan 2002 22:16:01 EST
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Dave, Andreas and Tom:

     Andreas: How can cash-flow be below EPS, since in order to derive 
cash-flow you must add non-cash expenses (like amortization expense, 
and-possibly (see next paragraph as to why I am uncertain)-good-will expense)

     On Wednesday or Thursday's CNBC show with Lawerence Kudlow at 11PM EST, 
the show revolved around the Enron scandal.  I thought I heard mention that 
the Supervisory Board relating to Accounting Practices was doing away with 
the balance sheet entry "Goodwill", but I thought it had already been done 
away with several years ago?  

     In any event, what baffles me is that just about everyone on the 
business news remarks on Enron's OFF BOOK ACCOUNTS, but I've heard no one on 
any of these shows lambast anyone at Enron (or Anderson 
who-putatively-audited them) who decided to go with off-book accounting.  It 
makes one wonder, how many public corporation have off-book entries?  It also 
makes one wonder if DGO, WON and IBD recognize these entries as legitimate-or 
if they are even aware of them?  I guess the bottom line is:  How accurate is 
an off-book entry, and does it accurately and legally reflect the 
corporation's profit/loss statement, or is it instead a gambit a corporation 
uses to circumvent investment law and SEC supervision? 

jans 


In a message dated 1/19/2002 8:02:27 PM Eastern Standard Time, 
judgejimmy@web.de writes:

<< ts 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.
 >  >>

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