Financial Accounting Blog

Wednesday, March 10, 2004 reports that cleaning up year-end cash flow balance sheets can cause problems.
Reducing payable, receivable and inventory accounts is a simple way to reduce working capital and, in-turn, have the cash-flow statement seem more desirable to investors. Even though companies are praised for having a consistantly low capital, a study by CFO magazine reports that working capital drops in the last quarter of the fiscal year and drastically rises once the annual report is released.

This drastic change can be very misleading, considering that most investors consider cash-flow to be very reliable resource. This year end scramble to improve final quarter reports suggests that companies could do a better job managing cash-flow year round.