April 21, 2020
Investors, other analysts, and management often rely on cash flows reported in the financials as a foundation of performance analysis and valuation. Unfortunately, those cash flows are not what they appear to be.
Many use the statement of cash flows (such as “cash flows from operations”) for judging earnings quality, measuring performance, and as key elements of discounted cash flow analysis. The cash flows reported from operations, however, are not truly from operations. Cash flows for financing do not accurately report the company’s financing activities. Cash flows reported for investing simply are not what the financials would purport.