Detecting profit manipulation

Reading financial statements is, sometime, a futile effort in knowing the company performance. Profit numbers are unreliable. Looking back at 1997 Asia financial crisis and 2000 Dot Com Bubble, failed companies unabashedly manipulated their numbers before their demises. Stock prices crashed before showing any sign of losses, or before the reported profits were rediscovered as losses. The unscrupulous managements cheated in their report cards. It makes us believe that it is useless and meaningless to read financial statements.

We rely on the numbers provided by the management to make our investing decisions. These numbers have to be authentic and we must have confident in relying on them. To confidently relying on numbers in making investing decisions, we must be able to detect profit manipulation.

This is FPM's voice, straight from an Accountant on how to detect profit manipulation.

Personal Financial Planning: An Overview

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