| John, there is no truth to financial statements. Basicly, what I've found to work over time is to isolate a few key metrics like free cash flow, DSO, A/R and Inventory growth compared to revenue growth, etc. Then TRACK THESE METRICS OVER TIME. Trend analysis is the only way to really see a good picture. The reason for this is that everything can be manipulated. But if you know how to calculate a few key metrics and you track them over time, at least you can see how consistent the company is. If they are cheating, then the cheating inevitably comes to light through you trend analysis. For instance, keeping your reserves high, so that you can reverse the reserves when you are a short a few pennies only works to smooth earnings if you have as many good quarters as bad. If they are all bad, then reserves will only help you once, then you'll never get to build them back up again. So again, there is no truth, only trends. |
