Basic Accounting: Short Term vs. Long Term Expenses

[Andrew Sackville-West]

Greg Novak wrote:

> 
> When I started looking into this, however, I didn't feel so bad about
> having trouble with it.  It seems that many of the sudden plunges of
> stock prices (Krispy Kreme was one example) that you see are the
> result of companies showing large paper profits while their cash
> reserves are going down.  Eventually it becomes clear that the
> "profits" are only on paper--the company has booked routine operating
> expenses as either capital investments or as "one-time" large outlays,
> thereby being overly optimistic about profits.  This is pretty much
> exactly the same problem that I'm struggling with; if large
> corporations sometimes mess it up, I guess it's not so bad that I have
> trouble too.
> 

FWIW, when I used to run the books for a corporation, no matter how I 
massaged the reports, I ALWAYS had to attach a long list of notes and 
adjustments about various transactions and what they really meant. 
Things like: "this expense is an annual expense at $1200, of which only 
$100 should be credited to this month so our operating profits for this 
month were actually $1100 higher, however due to paying this expense, we 
had negative cashflow for the month, thus despite having a profitable 
month, we have no free cash." This was repeated ad nauseum for all sorts 
of items and at the end of it all was a nice summary of the real state 
of the cash of the business.  There is no real substitute for looking at 
P&L, cashflow and balance sheet and then applying brains.

A

> Thanks for the input,
> Greg
> 
> 
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