📜 Introduction: Dividends paid from borrowed money. Revenues recognized on ghost contracts. What else lurks beneath the ink? This round leads you to numbers that look good… until you look twice.
🔎 Blurb: The CFO adjusted his tie. “We’re profitable if you ignore GAAP.” Holmes nodded. “And I’m tall if you exclude my shoes.”
🎮 Game 16: The Dividend Smokescreen
Despite negative earnings, the firm just raised its dividend. Bold or bluff?
💰 Review cash from operations
📉 Negative. The dividend is funded by debt. Smells unsustainable.
📈 Compare net income and dividend payout
🧮 They’re overpaying. Something has to give soon.
🎩 Trust the board’s confidence
😬 Don’t confuse tradition with prudence.
🎮 Game 17: The CAPEX Illusion
The company boasts free cash flow growth. But plant upgrades are long overdue…
🔍 Check maintenance vs growth CapEx
🧠 Clever! They’re deferring maintenance — inflating FCF temporarily.
📈 Celebrate their efficiency
😬 You fell for it! Deferred CapEx means future pain.
🧾 Review depreciation trends
📉 Depreciation flat while asset base expands? Suspect.
🎮 Game 18: The Deferred Tax Trick
Net income is stable, but the effective tax rate swings wildly. Curious?
📄 Investigate deferred tax assets/liabilities
🧾 They’re using tax credits from past losses to smooth results.
📈 Trust their GAAP tax line
🙈 You’ve been duped by accrual illusion.
💼 Review footnote disclosures
🔎 Bingo! They buried it under “other tax adjustments.”
🎮 Game 19: The Restructuring Ruse
Big one-time charges this year — “restructuring,” they say. Should you ignore them?
📂 Compare to past years
🔍 This is their 4th “one-time” expense. Not so one-time after all.
📈 Trust adjusted EPS
😬 You let them distract you with asterisks.
🧾 Read 3-year history
🧠 Good sleuthing. Repeat charges = recurring problem.
🎮 Game 20: The Float Game
The company holds large cash balances. Investors cheer. But what’s the source?
💳 Analyze customer prepayments
📦 They’re floating on unearned revenue. Temporary cash.
📈 Praise liquidity strength
😬 Not so fast — it’s a liability disguised as strength.
🔍 Compare cash to obligations
✔️ Outstanding work. Liabilities dwarf the “free” cash.