Financial Metrics Shenanigans
Newly minted doctors are required to take the Hippocratic oath and pledge their commitment to practice medicine ethically.
Perhaps corporate managers should be made to study the Hippocratic oath and apply it in earnest when they communicate with investors. In so doing, they would pledge to never knowingly harm investors and always refrain from showcasing metrics that misrepresent performance. That day seems way off in the horizon. Until it arrives, however, investors must be alert to the following three techniques that management can use to obfuscate:
- Highlighting a misleading metric as a surrogate for revenue;
- Highlighting a misleading metric as a surrogate for earnings; and
- Highlighting a misleading metric as a surrogate for cash flow.
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