Financial Warnings: Detecting Earning Surprises, Avoiding Business Troubles, Implementing Corrective Strategies (Hardcover)

by Charles W. Mulford (Author), Eugene E. Comiskey (Author) "It is the rare day when at least one item in the financial press does not characterize a company's results as falling sharply below expectations..." (more)
Key Phrases: cumulative contract revenue, sustainable earnings base, misreported assets, New York, American Institute of Certified Public Accountants, Corporate Information (more...)

Editorial Reviews

Product Description
A comprehensive, accessible, and innovative approach to a potentially devastating problem.

When a firm's actual earnings fall significantly short of expectations, it's not just the company that suffers. Lenders, equity investors, accountants, auditors, and consultants can also take a hit from this "earnings surprise."

Financial Warnings is designed for one purpose—to make sure that such a shortfall never undermines your financial security. Clearly and systematically, this unique practical guide helps you:

• Understand the many causes of earnings surprises, including fraud, overstated revenues, undervalued liabilities, and many more
• Identify the early warning signals associated with particular earnings surprises, so you can take prompt corrective action
• Prevent earnings surprises from happening in the first place by improving the quality of earnings forecasts

Financial Warnings comes complete with a unique early warning system to put you on the alert for potential trouble, foolproof checklists to help you spot those "yellow flags," a convenient sustainable earnings worksheet to sharpen your earnings forecasts, and plenty of vivid case histories to show you how to anticipate and avoid earnings surprises—not just on paper, but in the real world.

A material difference between a corporation's expected and actual earnings, otherwise known as an earnings surprise, can spell big trouble for lenders and equity investors, to say nothing of the company in question. The failure to anticipate a negative result can threaten a lender's prospects for loan repayment, cause investors to absorb heavy losses, and trigger substantial losses on positions in equity securities.

Dedicated to the principle that "forewarned is forearmed," this book provides accountants and other users of financial statements with the resources needed to avoid these damaging financial discrepancies. Charles Mulford and Eugene Comiskey employ numerous case studies to examine and define these discrepancies and classify earnings surprises according to their major causes: changing economics, fraud, and aggressive application of GAAP. They then examine the results of a survey of bankers and develop a system for rating earnings surprise potential. This Earnings Reversal Score concisely categorizes cautionary signals, such as profitability, liquidity, and management-related early warnings, enabling accountants to recognize problems and take timely corrective measures.

Financial Warnings helps improve the quality of earnings forecasts as well. With the aid of a detailed worksheet and a pair of extended case studies, you'll learn how to locate material nonrecurring items—a major cause of earnings surprises—and determine a firm's sustainable earnings base more accurately. You'll discover how to pinpoint differences in the book and market values of assets and liabilities, which, if undetected, can also result in earnings surprises. In addition, you'll learn the early warning indicators of fraudulent financial reporting, as well as crucial information on the role and responsibility of auditors in detecting such fraud.

An important resource for accountants, executives, CFOs, and company auditors, Financial Warnings is an indispensable guide for investors and others who depend on the accuracy of earnings projections. Even if you have only a tentative understanding of basic accounting issues, this easily accessible presentation will help you develop the knowledge and skills you need to formulate more accurate earnings expectations and avoid the potential disasters caused by earnings surprises.

From the Publisher
The authors identify the financial traits of firms which precede unanticipated and typically disastrous reductions in corporate earnings and forecasted cash flow to help users of financial information recognize these potentially catastrophic financial characteristics. Explains how to understand and implement corrective tactics to reverse sizable reductions in earnings and cash flow as well as blunt their accompanying impact. Includes illustrative case studies, numerical examples, and sample debt restructuring agreements.

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Product Details

• Hardcover: 478 pages
• Publisher: John Wiley & Sons Inc; 1st edition (January 15, 1996)
• Language: English
• ISBN-10: 0471120448
• ISBN-13: 978-0471120445
• Product Dimensions: 9.1 x 6.2 x 1.7 inches
• Shipping Weight: 3.2 pounds (View shipping rates and policies)
• Average Customer Review: 5.0 out of 5 stars See all reviews (9 customer reviews)
• Amazon.com Sales Rank: #612,659 in Books (See Bestsellers in Books)

Customer Reviews

Most Helpful Customer Reviews

15 of 15 people found the following review helpful:

5.0 out of 5 stars Best financial book for your money., April 17, 2002

By	Richard Kreger (New York, NY) - See all my reviews

The funny thing is that I have read over 20 books on financial analysis and investing, and I believe that every penny that I have spent on this book was well worth it. The price of the book scared me at first, but where all of the other books that I read fell short, Financial Warnings did not. I was very impressed with the detail to which the book describes each investment scenario. There is no shortage of financial warnings to look out for. In fact, I was shocked to learn of how many warnings lenders and investors should be aware of. Not only has this book taught me about what to avoid, but also about what to buy. Did you know that the CEO or CFO going through a divorce is a financial warning? Did you know that a company entering a new business is a financial warning? Did you know that beating earnings expectations by one penny every quarter is a financial warning when your competitor fell short of expectations? This is a must read. Reading Financial Warnings has changed my life. It is a must read.

14 of 14 people found the following review helpful:

5.0 out of 5 stars This book rates with the best in forecasting problems., September 22, 1999

By	[e-mail] (Los Angeles, CA) - See all my reviews

I have read many books dealing with forecasting financial problems. This rates with the best. I found it especially useful to incorporate the authors'suggestions into a financial spreadsheet which highlights with color to indicate when the stated numerical criteria has been reached. The only shortcoming may be that there is no comment on Z-Scores or similar indicators.

12 of 13 people found the following review helpful:

5.0 out of 5 stars need more books like this, August 12, 1999

By	Erich Riesenberg "[e-mail]" (West Des Moines, IA) - See all my reviews

i think this is an excellent book which explains well how a person can dissect financial statements and attempt to uncover misreporting. i would like to know if there are other books such as this. i've also read Quality of Earnings, written over 10 years ago... if you have any suggestions please write (thanks).