Go to Jeff Salisbury LWGate Home Page.From: Andreas Himmelreich <judgejimmy@web.de>
Subject: AW: AW: [CANSLIM] Arthur Andersen
Date: Sun, 20 Jan 2002 17:06:02 +0100
Next Article (by Author): AW: [CANSLIM] LNY Andreas Himmelreich
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Jans, cash-flow can be below EPS, since in order to derive you must add non-cash expenses (e.g. appreciation of a mashinery park) minus non cash income (e.g. "Goodwill") minus cash expenses that are not calculated in the earnings (like the famous "one time" charges) plus cash income that are not calculated in the earnings (like "one time" income) The thing is that companies can very often choose totally legal if a cash income or cash expense reflects into EPS. The same for non cash income --> They can activate "Goodwill" or they can book it as EPS reflecting charges. So it gets dangerous if the Price Cash Flow Ratio is below the PE Ratio, because then the firms potentially uses the legal possiblity of choosing how to book their cash expenses in a way so they are not reflected in the earnings (e.g. a cash expense of the EPS Book) extensivly. Accountants refer this then as a unhealthy ballance sheet or "aggresive" reporting (Amazon is King here, they post an operative break even, which is useless because they have a negative Cash flow of a Dollar). You will not belive what you can reach legally with this "choosing posibilities". I worked as a controller of a Chamber of Comerce and Industry (which has slight different reporting laws, but still you could "choose" a lot). The people controlling us (the members) had no clue on what hit them, no idea of the money the chamber really made (in this case much more then we reported, because we wanted to give the impression, that we are poor, so they did not have the idea of paying less fees). If they had questions you simply answered in such a complicated way, so they gave up ... You can legally cook you earnings books, so you appear poorer or richer. I did not like this, so I decided to get another job ... Poorer is not very likely in these days due to the Raiders in the 1980s which bought poor looking companies that where acutally rich and sold them. Since this times everybody tries to look at least as rich as they are. I found 579 Firms where the PE is below the PCF Ratio http://moneycentral.msn.com/investor/invsub/finder/finderx.asp?Query=SV1 QF140Z05F215Z&Name=Search2&Tickers=25 NYCB is a good example: PE 21 PCF 62,5 So the PCF is a very good indicator on how much a firm uses the OFF BOOK cash expenses. CASH FLOW REPORTING CAN NOT BE COOCKED LEGALLY. Another good way is to look on the taxes they pay. If the earnings are high and they do not pay taxes, there is a problem (this counts not for Israel Companies, due to the fact that they give huge tax breaks to their firms, especially in the first years of business). See you Andreas > -----Ursprungliche Nachricht----- > Von: Spencer48@aol.com [SMTP:Spencer48@aol.com] > Gesendet am: Sunday, January 20, 2002 4:16 AM > An: canslim@lists.xmission.com > Betreff: Re: AW: [CANSLIM] Arthur Andersen > > 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. > > >> > > - > -To subscribe/unsubscribe, email "majordomo@xmission.com" > -In the email body, write "subscribe canslim" or > -"unsubscribe canslim". Do not use quotes in your email. - - - -To subscribe/unsubscribe, email "majordomo@xmission.com" - -In the email body, write "subscribe canslim" or - -"unsubscribe canslim". Do not use quotes in your email.
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