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How Companies Fake It (With Cash Flow)

Trading Articles
Financial shenanigans cost shareholders billions of dollars. This is part of an ongoing series about how to spot Wall Street wrongdoing before it puts your portfolio in jeopardy. See "Is There an Enron Sitting In Your Portfolio-" and "4 Signs a Company Is Fudging Its Quarterly Results" for more.) Cash is king. And unlike accounting inventions like "earnings per share" and "EBITDA," cash is tangible, fungible, and, heck, certain currencies are even smoke-able, I'm told. Focusing on cash flow -- instead of the accrual based figures that Wall Street is so fond of -- is a good way for investors to measure a company's financial health and operational strength. That said, measuring a company's cash flow isn't as simple as calculating the difference between how many dollars leave a company's c...