Issue 101, 19 April 2002
Investor's College Cash flows (cont.) Two listed companies employing such 'naughty' behaviour are CSR and MIG. Both include their interest revenue in the operating section but tuck their interest payments away in the financing area. At least Pasminco had the decency to shift both interest revenue and interest paid down to the financing section.
Of course, none of this is illegal. But you must be aware of the stunts some companies pull. They certainly won't proudly announce such things in the annual report. It's up to you to spot them for yourself. And don't be daunted by the task - it really isn't that difficult once you're aware of it.
So, in each annual report you receive, check for these two points: compare the accounting revenue to the cash received and check under which section the interest payments are located in the cash flow statement.
Next issue we'll go into a little more detail, eventually covering cash flow ratios, which should come in handy in your own analysis. So, until next issue, why not dig out some of the annual reports of companies you own and run a fresh eye over their cash flow statements.
If you spot any irregularities we'd love to hear about them. Email us at info@intelligentinvestor.com.au and we'll take a look. Wouldn't it be great to save The Intelligent Investor family from the next ERG, eisa or Pasminco?
C o p y r i g h t Š 2 0 0 6 The Intelligent Investor . Published by The Intelligent Investor Publishing Pty Ltd. ABN 12 108 915 233. Australian Financial Services Number 282288. PO Box 1158, Bondi Junction NSW 1355. Ph: 1800 620 414 Fax: (02) 9387 8674 WARNING This publication is general information only, which means it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether a particular recommendation is appropriate for your needs before acting on it, seeking advice from a financial adviser or stockbroker if necessary. Not all investments are appropriate for all subscribers.
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