Creative Cash Flow Reporting: Uncovering Sustainable Financial Performance

Foreword xi

Preface xiii

About the Authors xv

1 Seeking Sustainable Cash Flow 1

An Artificial Boost to Operating Cash Flow 3

Classifying Cash Flow 5

Sustainable Cash Flow 9

Creative Cash Flow Reporting 18

Ignoring the Statement of Cash Flows 29

Cash Flow Analysis 30

Plan of This Book 32

Summary 33

2 Structure of the Statement of Cash Flows 37

Historical Background 38

Arrival of the Statement of Cash Flows 49

Non-GAAP Measures of Cash Operating Performance 68

International Differences in the Statement of Cash Flows 73

Summary 74

3 Is it Operating or Investing Cash Flow? 81

Investing Cash Flow 86

GAAP Flexibility: Is it Operating or Investing Cash Flow? 91

Beyond the Boundaries of GAAP 114

Summary 116

4 Is it Operating or Financing Cash Flow? 121

Financing Cash Flow 125

GAAP Flexibility: Is it Operating or Financing Cash Flow? 131

Beyond the Boundaries of GAAP 154

Summary 155

5 Income Taxes and the Statement of Cash Flows 159

Tax Reporting Essentials 160

Classification of Tax-Related Cash Flow 166

Nonrecurring Income Tax Cash Flows 180

Summary 203

6 Nonrecurring Sources and Uses of Operating Cash Flow 209

Characteristics of Nonrecurring Items of Operating Cash Flow 211

Examples of Nonrecurring Cash Sources and Uses 211

Management Identification of Nonrecurring Operating Cash Flow 213

Locating Nonrecurring Items of Operating Cash Flow 218

Cash Flow Tracking 231

Summary 235

7 Measuring Sustainable Operating Cash Flow 241

Sustainable Operating Cash Flow 242

Calibrating Operating Cash Flow Adjustments 244

Measuring Sustainable Operating Cash Flow 252

Completed Sustainable Operating Cash Flow Worksheet 257

Frequency and Size of Adjustment Items 262

Summary 265

8 Using Operating Cash Flow to Detect Earnings Problems 269

Relationship between Earnings and Operating Cash Flow 271

Earnings Supported by Artificial Means 284

Excess Cash Margin 290

Summary 300

9 Analyzing Operating Cash Flow 305

Cash Flow Analysis Statement 308

Using the Cash Flow Analysis Statement 314

Cash Flow Drivers 325

Closer Look at Core Operating Cash Flow 336

Summary 341

10 Understanding Free Cash Flow 345

Uses of Free Cash Flow 348

What is Free Cash Flow? 358

Free Cash Flow to Common Equity: A Closer Look 362

Capital Expenditures 370

Acquisitions and Free Cash Flow 375

Summary 375

Glossary 379

Subject Index 395

Company Index 409