Episode Details

In this session, we began by looking at broad definitions of cash flows, before embarking on updating, normalizing and cleaning up accounting earnings. In particular, we talked about why we capitalize R&D expenses, and how they affect valuation inputs. We continued our discussion of cash flows, by first putting to rest some final issues on earnings, including the tax rate to use in computing after-tax cash flows and dealing with money losing companies. In the process, we did look at what to do about accounting fraud, and while the answer is not much, there may be a role for forensic accounting. To be honest, most forensic accounting books are designed for valuation morticians, but here are a couple that you may find useful:
http://www.amazon.com/Financial-Shenanigans-Accounting-Gimmicks-Reports/dp/0071703071/ref=pd_sim_b_8
http://www.amazon.com/Creative-Cash-Flow-Reporting-Sustainable/dp/0471469181/ref=pd_sim_b_2

Start of the class test: https://pages.stern.nyu.edu/~adamodar/pdfiles/eqnotes/tests/cftests2.pdf
Slides: https://pages.stern.nyu.edu/~adamodar/podcasts/valUGspr24/session9slides.pdf
Post-class test: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session9Btest.pdf
Post-class test solution: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session9Bsoln.pdf

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