Net income being greater than cash flow from operations may indicate aggressive accrual accounting policies that shift current expenses to future periods.Can somebody explain this statement?

@SbS - if the ratio of CFO to Net Income is consistently below 1 it might be a signal of heavy use of accrual accounting, where expenses are being recognized later in the future to show greater net income today.This is a red flag to analysts as it indicates a low quality of earnings.

A CFA Level 2 Discussion About Net Income Greater Than Cash Flow From Operations

Add A Reply

This topic has 1 reply, 2 voices, and was last updated Mar-217:17 pm by Sophie Macon.

Author

Posts
- SbS
  Participant
  09 Mar 2021 at 8:50 am
  Up
  4
  ::
  Net income being greater than cash flow from operations may indicate aggressive accrual accounting policies that shift current expenses to future periods.
  
  Can somebody explain this statement?
- Sophie Macon
  Keymaster
  10 Mar 2021 at 7:17 pm
  Up
  5
  ::
  @SbS – if the ratio of CFO to Net Income is consistently below 1 it might be a signal of heavy use of accrual accounting, where expenses are being recognized later in the future to show greater net income today.
  
  This is a red flag to analysts as it indicates a low quality of earnings.
Author

Posts

Viewing 1 reply thread

You must be logged in to reply to this topic.