Forensic accounting for equity research: test the story against the cash

Start with a consistent financial history

Reconcile the statements and reporting periods before reading unusual ratios. Compare revenue with receivables, profit with operating cash flow, and operating cash flow with reinvestment needs. Read the acquisition, currency and seasonality notes that may explain a difference.

A benign explanation and an adverse one should both survive the first look. Faster receivables growth can reflect billing timing, sales mix or worse collections. The next step is the note and its data, not a conclusion from the ratio.

Check whether the measure changed while the story stayed the same

Track KPI definitions, segment reorganizations, non-GAAP adjustments and management's promises. An apparent improvement may come from a changed denominator or an excluded expense. Rebuild comparable periods where you can and keep a record of each adjustment.

Use counterparties' filings to test claims about demand and customer economics. Several articles repeating one source are not independent. Record what an outside disclosure confirms and what it leaves open.

Contradictions as a missing chapter

In Amten, a forensic flag appears as a contradiction between two signal families: revenue against receivables, profit against cash, a customer's filing against the company's. The missing chapter keeps both sides on the map and names the tension instead of resolving it early, with the filed passage in the evidence sidebar.

Ask the beat what would settle it, and the branch lists the disclosure or the date. If the item has no measured price reaction, remember that it may be unnoticed, already known or judged immaterial; the beat states the measurement, not a verdict.

Guide: the missing chapter →

Common questions