Reading Financial Reports For Dummies, 3rd Edition

Chapter 23

Keeping Score When Companies Play Games with Numbers

In This Chapter

Discovering the methods of creative accounting

Finding massaged company earnings

Recognizing beefed-up revenues

Spotting expense-cutting strategies

Detecting cash flow games

Companies cooking the books — and I don't mean throwing them in a raging fire in disgust — fuel an ongoing game of hide-and-seek among company outsiders that results in millions, and sometimes billions, of dollars of losses for investors every year. In some cases, company insiders use numerous tactics to deceive their shareholders and pad their own pockets. The mortgage mess in 2007, when mortgage-related securities were held off the books, destroyed the stock value of many major financial institutions, such as Citigroup and Merrill Lynch.

Throughout most of this book, I concentrate on reading financial reports that accurately portray the financial status of a company, but unfortunately, not all reports fall into this category. The ...