Monday, February 22, 2010

Accounting Tricks (Lies), Depreciation, Amortization, And Cash From Nowhere

That "son of a gun" Tyler Durden (I say "son of a gun" in the most affectionate and yet envious way) has another great post about misleading numbers on balance sheets at many corporations in the S&P 500.  You can find it over at ZeroHedge with some accompanying charts.  The "permabulls" on CNBC as Durden calls them (a certain Italian C___ comes to my mind, the one who doesn't know when Medicare kicks in) have been doing their usual salesmanship on all the cash these companies have for M&A(mergers and acquisitions), expansion, stock buybacks and on and on....  But as Durden tells us, we need to take a closer and detailed look at what is the real source of this excess cash.

The dunderheads at CNBC would have you believe that the excess cash comes from almost pure (almost 100%) revenue, which "thanks to" vast layoffs, plummeting Selling, General, and Administrative (SG&A) expenses, feeds into retained earnings and then hence to higher cash numbers.  This certainly is part of the uptick in excess cash, but according to Durden's analysis mostly ahem, ahem, bullshit!! ahem.  There is a good chance this "excess cash" (about $155 billion) as it is recorded now on balance sheets will largely "disappear" over time.

I will let Tyler Durden explain the details, but you need to read this.  In light of the recent market upturns people are already starting to get giddy about the stock market again.  People have short memories and there are still a lot of anomalies, funny quirks, and miraculous recoveries in the market now.  This is a must read to keep proper perspective.

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