It is generally said by most of the investors that the cash flows are relatively more important than the accruals. Before taking the investment decision in particular shares, the investors focus on the cash flow statement more as compared to other financial statements such as; profit and loss account and the balance sheet. One of the reasons they assume of superiority of cash flows over accruals is that “Cash flows can not be manipulated” and thus show clear and fair results of the different activities of the business pointed out by the investors.
Considering the above underlined statement as FALSE, List down four ways in which cash flows in a cash flow statement can be manipulated.
Note: Be concise and to the point. Your answer should be in “four” bulleted points and no detail is required.
Answer:
FIN622 GDB Solution
1-Companies can bulk up their statements simply by changing the way they deal with the accounting recognition of their outstanding payments, or their accounts payable.
2-Another way a company might increase operating cash flow is by selling off its accounts receivable. This is also called scrutinizing.
3-A subtler steroid is the inclusion of cash raised from operations that are not related to the core operations of the company.
4-Also a subtle form of doping, we have the questionable capitalization of expenses.
Considering the above underlined statement as FALSE, List down four ways in which cash flows in a cash flow statement can be manipulated.
Note: Be concise and to the point. Your answer should be in “four” bulleted points and no detail is required.
Answer:
FIN622 GDB Solution
1-Companies can bulk up their statements simply by changing the way they deal with the accounting recognition of their outstanding payments, or their accounts payable.
2-Another way a company might increase operating cash flow is by selling off its accounts receivable. This is also called scrutinizing.
3-A subtler steroid is the inclusion of cash raised from operations that are not related to the core operations of the company.
4-Also a subtle form of doping, we have the questionable capitalization of expenses.
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