Wednesday, April 15, 2009

Accounting Bitch #3

Here's an aggravating link from my good friend Billy over at UT Austin. The article discusses Goldman Sachs' change of their calendar, a move that just happens to leave the disastrous month of December as a footnote in their financial statements, enabling them to show quasi-healthy profits this quarter.

What's aggravating is the sheer meaninglessness of corporate financial reporting. As I've said before, the best option for an investor is to look at cash. Look at the cash a firm generates. Poor cash management is what typically brings down corporations, and the current myriad accounting rules only serve to hide poor cash management. On the other hand, the rules can also mask a good cash position, such as in the case of mark-to-market, where banks were forced to write down assets to ridiculously low levels, even though those assets were still generating cash.

Look to cash. Always look to cash.


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