Customer Reviews

Creative Cash Flow Reporting: Uncovering Sustainable Financial Performance

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Over several years of using and preparing the GAAP-based cash flow statement in analysis, I have found it isn't that useful in enabling me to drill down to understand where a company's real operating cash flow comes from. Mulford's methodology does an excellent job focusing on interim period cash flow information to enable the reader to better spot positive and negative trends in an operating company's performance. I found Creative Cash Flow Reporting to be a most useful treatise on what's wrong with the cash flow statement and how to work around its problems. The section on analysis, the cash flow drivers, and the growth cash-flow profile were particularly helpful.

Messers Mulford and Comiskey have released a primer on what has lately become a messy subject. Unlike other books with a focus on cash--Hackel's book, for example--this one delves a little bit deeper into the subject of financial misreporting. The reader is given a synopsis of how companies say that their cash is operating, whereas it ought to be put under financing or investing cash flow. There is a multitude of similarly constructed arguments. The examples are lucid, apropos, and contemporary. The book also has a deterministic model for calculating CFFO. Read it.

Mulford and Comiskey have delivered a tour de force for the financial and accounting community in this book. Whether you are a financial analyst, corporate accountant, auditor or an executive with a small or large firm, you absolutely will benefit from this book. It is one of the most important books of the last 20 years, and in my opinion, it is the finest book ever written on the concepts and methods of deciphering Operating Cash Flow, it's relationship to earnings, calibrating and measuring free cash flow, as well as the mechanics and drivers (and sometimes deliberate manipulation by unscrupulous management) within the business system that can lead to distortions in the Cash Flow statement.

What about earnings supported by artificial means? What are the core drivers of cash flows? What should our view be, vis a vis the Operating Cash flows, regarding non recurring charges and depreciation? Are capital expenditures really as cut and dry as we like to think they are, under GAAP? How does it impact our cash flows, in the real world? How is it sometimes manipulated, to distort the underlying cash flow realities?

If you are a financial or accounting professional, read this book. Read it twice. Read it three times. An absolutely extraordinary book. Well written, insightfull, never boring, always intriguing with unique content. The authors have such an extraordinary grasp of accounting and financial flows, and bring such groundbreaking concepts and ideas to the field, that you won't put this book down, and there are not many accounting or finance books we can say that about !! "Creative Cash Flow" by Mulford and Comiskey is absolutely a virtuoso performance. Amongst, and compared to, the entire literature that exists in the field of accounting and financial analysis, this book is an extraordinary achievement.

While most accounting books tell you the basic mechanics of cash flow (not to mention being extremely dry), and most finance/investing books basically stop at `earnings can be manipulated wildly, cash is king, and thus free cash flow is paramount', this is the best book I have read that is focused on how cash flow can be manipulated/misclassified and how to think about sustainable cash flow from operations. For example, learn how an acquisition of a company can boost operating cash flow (CFO) by more than the CFO of the acquired company. Or how messing around with vendor financing can increase reported CFO. Representative chapter titles include: "Is It Operating or Investing Cash Flow", "Is It Operating or Financing Cash Flow?", "Nonrecurring Sources and Uses of Operating Cash Flow", "Measuring Sustainable Operating Cash Flow".

In summary, this is a well-written book with great examples of how cash flow can and has been manipulated by companies. I highly recommend this book for advanced and professional investors who focus on fundamental analysis, and anyone else who is interested in improving their ability to analyze cash flow.

This is not your typical accounting/finance book (i.e., unclear, unfocused and boring). Creative Cash Flow Reporting is the best and most important accounting/finance book I've read in many years. The authors are certainly focused on the right area (determining sustainable cash flow from operations). The interesting nuances of cash flow reporting are laid out in simple terms (e.g., debt funding and repayments are reported with Financing cash flows, but the related interest expense is reported with Operating cash flows). The authors also go beyond the numbers to provide good background re: a number of strategic alternatives (e.g., why one might enter into a sale/leaseback transaction). There are many other reasons to recommend the book.

In summary, this book is a "must have" for accountants and financial analysts, and I would strongly recommend for CEOs, COOs, corporate and securities attorneys, and corporate middle managers.

I was a student of Dr. Mulford during my MBA, and I can say that the book is as great as his class. He definitvely was one of the best professors I ever had.
We are used to see in many valuation books to take Free Cash Flow as a given; therefore not understanding the real implication of FCF manipulation in enterprise value.
This book explains how the FCF can be calculated and what are the usual "tricks" that companies do in order to show better (or worse?) results. And that is what is all about: building financial criteria for managers in order to make the best decisions.

This book is not a quick read. It has almost 400 pages. But, it elevates an investor to a completely different level. It is all about cash flow. It teaches investors about cash flow classification between operating cash flow, investing cash flow, and financing cash flow. Sometimes, there are gray areas where certain inflows and outflows can be categorized in different categories. Managers can also manipulate numbers around to classify something as an operating inflow when in reality, it should be more classified as an investing cash flow or financing cash flow. But, I would warn readers that this is not a book for beginners. I would definitely have a hard time following along had I not taken accounting courses in college.

- Mariusz Skonieczny, author of Why Are We So Clueless about the Stock Market? Learn how to invest your money, how to pick stocks, and how to make money in the stock market

My main complaint about this book is its poor language. It is written in that awkward and abstract kind of language that some academics like to use, but which is hard to read for everyone else. Here's a typical example: "... cash paid to purchase or proceeds received from the sale of investments in debt or equity securities held for trading purposes is reported as operating cash flow." You can decode a few phrases like this here and there, but when an entire book is written in such a language it takes an immense effort to read.

I hope the authors will do a major rewrite of this book and greatly improve its clarity as it has some very interesting and important points about the analysis of financial cash-flow statements. In the meantime you may wish to take a look at the book Free Cash Flow by George Christy instead.

As a Professor of Accounting I am always on the lookout for examples of topics taught in my classes. Most of my students believe that cash flows cannot be manipulated and are skeptical when I tell them that cash flows are subject to interpretation just like accrual based accounting information. To punctuate that point I have my students read parts of this book and lead a discussion of the examples in the book. The students are truly amazed at the breadth of examples in the book and it seems to sink in that cash flows can be interpreted. I have read the entire book and find it well written and insightful regarding cash flows and their disclosures. I believe the book to be of great value for academics, financial professionals, analysts and cash flow enthusiasts.

In the preface the authors mentions that this book "was written for serious readers of financial statements, including equity analyst or investors, credit professionals, serious individual investors, professional money managers". . .

Cash flow exhibits are illustrated and discussed throughout the book with large corporations that you will immediately recognize.

As I began to read this book, I became very aware that these authors are intensely well versed in this field. It states on p 32 that "by now the reader should be well aware that reported cash flow is not necessarily what it seems." As the reader I would agree with this statement. I read this book as part of a CPE class. This was a win win opportunity for me. I earned credits and learned about cash flow statements shenanigans.

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Other notes worth mentioning:

p254-257 has an exhibit of a Sustainable Operating Cash Flow Worksheet to assist the reader on their understanding of "organizing and recording non-operating & nonrecurring items of operating cash flow.

Chp 8 - Using operating cash flow to detect earnings problems-discussion includes cyclical developments and life cycles of an organization.

p 290-300 ECM- excess cash margin is discussed as a beneficial statistical measure when analyzing a cash flow payment. p 294 states "it is the most effective in uncovering reported earnings that have been boosted by artificial means". p297 mentions that "ECM provides a useful alert mechanism for identifying developing problems early."