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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Don Earl who wrote (15028)	8/2/2002 1:03:21 PM
From: Dave	Read Replies (1) \| Respond to of 78510

What you are trying to compare is a company's Income Statement to a company's Statement of Cash Flows. Put simply, if a company states that they had $1 in Net Income due to GAAP accounting, that does not mean that the company generated, from operations, $1. Let's make a simplistic analysis. You are Don Earl, Inc. and you have a widget that cost you $30. Assume no liabilities or other various forms of assets and no taxes. Therefore, on your Balance Sheet you have Inventory of $30. Now, let's Assume that Dave, Inc. purchases that "widget" from you in the next quarter. Therefore, you report "earnings" next quarter. Income Statement: Revenues: $50 (Dave, Inc.'s purchase) Cost of Goods Sold: $30 Profit: $20 Now, I have not yet "paid" you, therefore that $50 is on credit. In the previous period, you had one asset which was Inventory valued @ $30. The current period, your Inventory went to $0 (you sold the widget); however, your Accounts Receivable Increased to $50 As for your cash flows Net Income: $20 Decrease in Inventory: +30 Increase in A/R: -50 Cash Flow from Operations: 0

To: Don Earl who wrote (15028)	8/2/2002 8:01:05 PM
From: TimbaBear	Respond to of 78510

Don Earl: Thank you for your kind comments! "If nothing else, I'd think insider trading regulations should apply to the transactions. I've seen a lot of cases where a company will announce buy backs while insiders are exercising options and dumping the stock in the open market. At the very least the six month rule should apply. If the company is buying, insiders should be prohibited from selling for six months. I think there are times when buy backs make some sense. For example, when a company is debt free and has a lot of cash at the bottom of the chart. But I don't think insiders should be allowed to use shareholder assets to make a market for their personal sales. I agree! Timba