How to read a balance sheet like a CFO: A risk-based approach

https://www.youtube.com/watch?v=DMv9JC_K37Y

Total Assets and Total Liabilities

The totals of assets and liabilities appearing on the balance sheet supply only a rough indication of the size of the company.   Balance sheet totals may be readily inflated by excessive values set upon intangibles, and in many cases also the fixed assets are arrived at a highly exaggerated figure.

On the other hand, we find that in the majority of strong companies, the good will which constitutes one of their most important assets either does not appear upon the balance sheet at all or is given but a nominal valuation (usually $1).  There was once a practice of writing down the fixed assets, or plant account, to virtually nothing in order to save depreciation charges.  Hence it is a common occurrence to find that the true value of a company's assets is entirely  different from the balance sheet total. 

The size of a company may be measured in terms either of its assets or of its sales.  In both cases, the significance of the figure is entirely relative, and must be judged against the background of the industry.  The assets of a small railroad will exceed those of a good sized department store. 

From the investment standpoint - especially that of a buyer of high-grade bonds or preferred stocks - it may be well to attach considerable importance to large size.  This would be true particularly in the case of industrial companies, for in this field the smaller enterprise is more subject to sudden adversity than is likely in a railroad or public utility. 

Where the purchase is made for speculative profit, or long-term capital gains, it is not so essential to insist upon dominant size, for there are countless examples of smaller companies prospering more than large ones.  After all, the large companies themselves presented the best speculative opportunities while they were still comparatively small.


Benjamin Graham

Balance Sheets in General

A balance sheet shows how a company stands at a given moment.  There is no such thing as a balance sheet covering the year 2018; it can only be for a single date, for example, 31st December, 2018.

A single balance sheet may give some indications as to the company's past, but this may be studied intelligently only in the income accounts and by a comparison of successive balance sheets.

A balance sheet attempts to show how much a corporation has and how much it owes.  What it has is shown on the asset side; what it owes is shown on the liability side.

The assets consist of the physical properties of the company, money it holds or has invested, and money that is owed to the company.  Sometimes, there are also intangible assets, such as good-will, which are frequently given an arbitrary value.  The sum of these items makes up the total assets of the company, shown at the bottom of the balance sheet.

On the liability side are shown not only the debts of the company, but also reserves of various kinds and the equity or ownership interest of the stockholders.  Debts incurred in the ordinary course of business appear as accounts payable.  More formal borrowings are listed as bonds or notes outstanding.  Reserves, may sometimes be equivalent to debt, but frequently they are of a different character.

The stockholders' interest is shown on the liability side as Capital and Surplus.  It is often said that these items appear as liabilities because they stand for money owed by the corporation to its stockholders.  It may be better to consider the stockholders' interest as representing merely the difference between assets and liabilities, and that it is placed on the liability side for convenience to make the two sides balance.

The total assets and the total liabilities are thus, always equal on a balance sheet, because the capital and surplus items are worked out at whatever figure is needed to make the two sides balance.



Also read:

The Reserves of a company is purely a paper entry.

https://myinvestingnotes.blogspot.com/2009/10/in-order-to-provide-bonus-issue.html

Why profit is listed with the liabilities in the Balance Sheet?

Assets and Liabilities in the Balance Sheet

• Assets in the Balance Sheet are the debit balances in the bookkeeping system.
• Liabilities in the Balance Sheet are credit balances in the bookkeeping system.

Credit and Debit Balances in the Profit Statement

• In the Profit Statement, sales and income are the credit balances.
• In the Profit Statement, costs are the debit balances.
• The net total of all the balances is the profit or loss.
• This one figure (profit or loss) goes into the Balance Sheet as a single item.
• A profit is a credit which is listed with the liabilities.

Explanation on why profit (a credit balance in the Profit Statement) is listed with liabilities in the Balance Sheet

• The explanation is that the profit belongs to someone outside the business. 
• If the Balance Sheet is for a company, the profit belongs to the shareholders.
• It may one day be paid to them in the form of a dividend or by return of capital on the winding up of the company.

Two accounting rules to Understand Balance Sheets

In order to understand the Balance Sheets, you must be familiar with the following two fundamental accounting rules:

• For every debit there must be a credit.
• Balance Sheet assets are debit balances and Balance Sheet liabilities are credit balances.

How do you identify an exceptional company with a durable competitive advantage from the ASSETS OF THE BALANCE SHEET?

How do you identify an exceptional company with a durable competitive advantage?

Financial statements are where you can search for companies with a durable competitive advantage that is going to make one super rich.

BALANCE SHEET

The balance sheet is a snapshot of the company's financial condition on the particular date that the balance sheet is generated.

Assets minus Liabilities = Net worth or Shareholders' Equity

Assets

Current Assets:  Cash and cash equivalents, short-term investments, net receivables, inventory and other assets.

Non Current Assets:  Long Term investments, Property Plant and Equipment, Goodwill, Intangible Assets, Accumulated Amortization, Other Assets and Deferred Long Term Asset Charges.

Individually and collectively, via their quality and quantity, tell a great many things about the economic character of a business and whether or not it possesses the coveted durable competitive advantage that will make an investor super rich.

Current Asset Cycle

Cash --> Inventory -->  Accounts Receivable -->  Cash.

This cycle repeats itself over and over again and it is how a business makes money.

Cash and Cash Equivalent

Companies traditionally keep a hoard of cash to support business operations.

A company basically has three ways of creating a large stockpile of cash.

·         It can sell new bonds or equity to the public, which creates a stockpile of cash before it is put to use.

·         It can also sell an existing business or other assets that the company owns, which can also create a stockpile of cash before the company finds other uses for it.

·         Or it has an ongoing business that generates more cash than the business burns.

Look at the past seven years of balance sheets. 

This will reveal whether the cash hoard was created by a one-time event, such as the sale of new bonds or shares, or the sale of an asset or an existing business, or whether it was created by ongoing business operations.  

If we see lots of debts, we probably are not dealing with an exceptional business.

But if we see a ton of cash piling up and little or no debt and no sales of new shares or assets and we also note a history of consistent earnings, we are probably seeing an excellent business with a durable competitive advantage - the kind of company that will make us rich over the long term.

A company that is suffering a short-term business problem may see its shares sold down in the stock market.   

Look at its cash or marketable securities that the company has hoarded away to gain an idea whether it has the financial strength to weather the troubles it has gotten itself into.

If we see a lot of cash and marketable securities and little or no debt, chances are very good that the business will sail on through the troubled times.  

But if the company is hurting for cash and is sitting on a mountain of debt, it probably is a sinking ship that not even the most skilled manager can save.

Inventory

With a lot of businesses, there is a risk of inventory becoming obsolete.

Manufacturing companies with a durable competitive advantage have an advantage, in that the products they sell never change and therefore never become obsolete.

To identify a manufacturing company with a durable competitive advantage, look for an inventory and net earnings that are on a corresponding rise.

This indicates that the company is finding profitable ways to increase sales and that the increase in sales has called for an increase in inventory, so the company can fulfill orders on time.

Manufacturing companies with inventories that rapidly ramp up for a few years and then, just as rapidly, ramp down are more likely than not companies caught in highly competitive industries subject to booms and busts.  

And no one ever got rich going bust.

Net Receivables

Receivables - Bad Debts = Net Receivables

If a company is consistently showing a lower percentage of Net Receivables to Gross Sales than its competitors, it usually has some kind of competitive advantage working in its favour that the others don't have.

Prepaid Expenses/Other Current Assets

Insurance premiums for the year ahead, which are paid in advance is an example of prepaid expense.

Prepaid expenses offer us little information about the nature of the business or about whether it is benefiting from having a durable competitive advantage.

Total Current Assets and the Current ratio

The higher the current ratio, the more liquid the company is.

A current ratio of over one is considered, good and anything below one, bad.

If it is below one, it is believed that the company may have a hard time meeting its short term obligations to creditors.

A lot of companies with a durable competitive advantage often have current ratios below one.

Their earning power is so strong they can easily cover their current liabilities.

Also, as a result of their tremendous earning power, these companies have no problem tapping into the cheap, short-term commercial paper market if they need any additional short term cash.

Because of their great earning power, they can also pay out generous dividends and make stock repurchases, both of which diminish cash reserves and help pull their current ratios below one.

There are many companies with a durable competitive advantage that have current ratios less than one.

Such companies create an anomaly that renders the current ratio almost useless in helping us identify whether or not a company has a durable competitive advantage.

Property, Plant and Equipment

These are carried at their original cost, less accumulated depreciation.

Depreciation is what occurs as the plant and equipment wear out little by little; every year, a charge is taken against the plant and equipment.

The company that has a durable competitive advantage replaces its plant and equipment as they wear out, while the company that doesn’t have a durable competitive advantage has to replace its plants and equipment to keep pace with the competition.

A company with a durable competitive advantage will be able to finance any new plants and equipment internally. 

But a company that doesn’t have a competitive advantage will be forced to turn to debt to finance its constant need to retool its plants to keep up with the competition. 

Producing a consistent product that doesn’t have to change equates to consistent profits. 

The consistent product means there is no need to spend tons of money upgrading the plant and equipment just to stay competitive which frees up tons of money for other money-making ventures.

Goodwill

The FASB (Financial Accounting Standards Board) decided that goodwill wouldn’t have to be amortized unless the company that the goodwill was attached to was actually depreciating in value.

Whenever we see an increase in goodwill of a company over a number of years, we can assume that it is because the company is out buying other businesses. 

This can be a good thing if the company is buying businesses that also have a durable competitive advantage.

If the goodwill account stays the same year after year, that is because either the company is paying under book value for a business or the company isn’t making any acquisitions. 

Businesses that benefit from some kind of durable competitive advantage almost never sell for below their book value. 

Occasionally it does happen and when it does, it can be the buying opportunity of a lifetime.

Intangible Assets

Intangible assets are assets we can’t physically touch:  patents, copyrights, trademarks, franchises, brand names and the like.

Companies are not allowed to carry internally developed intangible assets in their balance sheets.

Intangible assets that are acquired from a third party are carried on the balance sheet at their fair value. 

If the asset has a finite life – as a patent does – it is amortized over the course of its useful life with a yearly charge made to the income statement and the balance sheet.

The real value of some companies that benefit from durable competitive advantage may be understated.  

For example, its strong brand name is worth a lot and yet because it is an internally developed brand name, its real value as an intangible asset is not reflected in its balance sheets.

Coke’s brand name is worth a lot. The intangible asset of Coke is its brand that gives it durable competitive advantage and the long term earning power that came with it.

Short of comparing ten years’ worth of income statements, investors have had no way of knowing it was there or knowing of its potential for making them super rich.

Long Term Investments

This records the value of long term investments (longer than a year): stocks, bonds and real estate, investments in the company’s affiliates and subsidiaries.

This asset class is carried on the books at their cost or market price, whichever is lower.  

It cannot be market to a price above cost even if the investments have appreciated in value.

This means that a company can have a very valuable asset that is carrying on its books at a valuation considerably below its market price.

A company’s long-term investments can tell us a lot about the investment mind set of top management.

Do they invest in other businesses that have durable competitive advantages or do they invest in businesses that are in highly competitive markets (mediocre businesses)?

Watch out for management of a wonderful company buying mediocre companies.

Also search for  and love the management of a mediocre company buying companies with durable competitive advantage e.g. Berkshire Hathaway.

Other Long Term Assets

Examples are paid expenses and tax recoveries that are due to be received in the coming years.

These tell us little about whether or not the company in question has a durable competitive advantage.

Total Assets and the Return on Total Assets

Return on total asset ratio is found by dividing net earnings by total assets.

It tells us how efficient the company is in putting its assets to use.

Capital is always a barrier to entry into any industry.

One of the things that helps make a company’s competitive advantage durable is the cost of the assets one needs to get into the game.

The really high returns on assets may indicate vulnerability in the durability of the company’s competitive advantage.

Moody’s (total assets $ 1.7 billion, ROA 43%)

Coca Cola’s (total assets $ 43 billion, ROA 12%)

While Moody’s underlying economics is far superior to Coca Cola’s, the durability of Moody’s competitive advantage is far weaker because of the lower cost of entry into its business.

The Five Rules for Successful Stock Investing 6

Financial Statements Explained

[...] reading financial statements is the foundation for analyzing companies.

The balance sheet [...] tells you how much a company owns (its assets), how much it owes (its liabilities), and the difference between the two (its equity). Equity represents the value of the money that shareholders have invested in the firm [...].

"Cash and equivalents" usually contains money market funds or anything that can be liquidated quickly and with minimal price risk, whereas "short-term investments" is similar to cash – usually, bonds that have less than a year to maturity and earn a higher rate of return than cash but would take a bit of effort to sell.

[...] accounts receivable are bills that the company hasn't yet collected but for which it expects to receive payment soon.

Comparing the growth rate of accounts receivable with the growth rate of sales is a good way to judge whether a company is doing a good job collecting the money that it's owed by customers.

You'll often see an "allowance for doubtful accounts" just after accounts receivable on the balance sheet. This is the company's estimate of how much money it's owed by deadbeat customers, and which it's consequently unlikely to collect.

There are several types of inventories, including raw materials that have not yet been made into a finished product, partially finished products, and finished products that have not yet been sold. 

Inventories are especially important to watch in manufacturing and retail firms, and their value on the balance sheet should be taken with a grain of salt. Because of the way inventories are accounted for, their liquidation value may very well be a far cry from their value on the balance sheet.

Inventories soak up capital – cash that's been converted into inventory sitting in a warehouse can't be used for anything else. The speed at which a company turns over its inventory can have a huge impact on profitability because the less time cash is tied up in inventory, the more time it's available for use elsewhere. You can calculate a metric called inventory turnover by dividing a company's cost of goods sold by its inventory level.

Noncurrent assets are assets that are not expected to be converted into cash or used up within the reporting period. The big parts of this section are property, plant, and equipment (PP&E); investments; and intangible assets.

The most common form of intangible assets is goodwill, which arises when one company acquires another. Goodwill is the difference between the price the acquiring company pays and tangible value – or equity – of the target company.

[...] the value of goodwill that shows up on the balance sheet is very often far more than the asset is actually worth.

Accounts payable: These are bills the company owes to somebody else and are due to be paid within a year.

Noncurrent liabilities are the flip side of noncurrent assets. They represent money the company owes one year or more in the future.

Retained earnings is a cumulative account; therefore, each year that the company makes a profit and doesn't pay it all out as dividends, retained earnings increase. Likewise, if a company has lost money over time, retained earnings can turn negative and is often renamed "accumulated deficit" on the balance sheet. Think of this account as a company's long-term track record at generating profits.

Be sure to check the "revenue recognition policies" buried in the financial statements so you know what you're looking at – companies can record revenue at different times depending on the business that they're in.

Cost of sales, also known as cost of goods sold, represents the expenses most directly involved in creating revenue, such as labor costs, raw materials (for manufacturers), or the wholesale price of goods (for retailers).

Gross profit is simply revenue minus cost of sales. Once you have gross profit, you can calculate a gross margin, which is gross profit as a percentage of revenue. Essentially, this tells you how much a company is able to mark up its goods.

[...] the more differentiated a company's products are, the more it can mark up its good over what it costs to manufacture them.

Selling, General, and Administrative Expenses (SG&A), also known as operating expenses, includes items such as marketing, administrative salaries, and, sometimes, research and development. (Research and development is usually broken out as a separate line item, as is marketing for firms that spend large amounts on advertising.) You'll often see a relationship between SG&A and gross margin – firms that are able to charge more for their goods have to spend more on salespeople and marketing. You can get a feel for how efficient a firm is by looking at SG&A as a percentage of revenues – a lower percentage of operating expenses relative to sales generally means a tighter, more cost-effective firm.

Depreciation and Amortization: When a company buys an asset intended to last a long time, such as a new building or a piece of machinery, it charges off a portion of the cost of that asset on its income statement over a series of years. This number is occasionally broken out separately on the income statement, but it's usually rolled into operating expenses. It's always included in the cash flow statement, though, so you can look there to see how much a company's net income was affected by noncash charges such as depreciation.

Nonrecurring Charges/Gains is the catch-all area where companies put all the one-time charges or gains that aren't part of their regular, ongoing operations, such as the cost of closing a factory or the gain from selling a division. Ideally, you'd want to see this area of the income statement blank most of the time.

Operating Income is equal to revenues minus cost of sales and all operating expenses. Theoretically, it represents the profit the company made from its actual operations, as opposed to interest income, one-time gains, and so forth. In practice, companies often include nonrecurring expenses (such as write-offs) in figuring operating income, and you have to add back one-time charges (or subtract one-time gains) yourself.

Interest Income/Expense represents interest the company has paid on bonds it has issued or received on bonds or cash that it owns.

Net Income represents (at least theoretically) the company's profit after all expenses have been paid. [...] Although net income is the number you'll most often see companies tout in their press releases, don't forget that it can be wildly distorted by one-time charges and/or investment income.

Number of Shares (Basic and Diluted) represents the number of shares used in calculating earnings per share; it represents the average number of shares outstanding during the reporting period. Basic shares include only actual shares of stock, and you should pretty much ignore it – the fact that it's still recorded in financial statements is more of a historical legacy than anything else. Diluted shares, however, include securities that could potentially be converted into shares of stock, such as stock options and convertible bonds. Given the amount of egregious granting of stock options that has occurred over the past several years, it's the diluted number that you'll want to look at, because you want to know the degree to which your stake in the firm could potentially be shrunk (or diluted) if all those option-holders convert their options into shares.

The cash flow statement strips away all the abstract, noncash items such as depreciation that you see on the income statement and tells you how much actual cash the company has generated. [...] The cash flow statement is divided into three parts: cash flows from operating activities, from investing activities, and from financing activities.

If you can't understand how a dollar flows from a company's customers back through to shareholders, something's amiss. Either the company's business model is too confusing or you need to do more digging before committing any of your money.

When you're evaluating a company's liabilities, remember that debt is a fixed cost. A big chunk of long-term debt can be risky for a company because the interest has to be paid no matter how business is doing.

http://books.danielhofstetter.com/the-five-rules-for-successful-stock-investing/

What is in the detail of the equity section of the balance sheet?

Share capital and the share premium account together relates to the amount that investors actually have invested into the business.

Retained earnings relate to the total amount of profit that the company has made ever since it started trading and that has not yet been given back to the shareholders.  This is the profit that has been reinvested back into the business on behalf of the shareholders.

Other equity reserves relate to amounts owed to the shareholders, but that cannot be classified as profit or investment - an example of another reserve might be a revaluation reserve.

The balance sheet of a company may be titled "Consolidated statement of financial position".  This means that the balance sheet is the combined balance sheets of all the different companies through which it conducts its business.  It is quite possible that it does not own 100% of all of its subsidiary companies.  If another party owns a very small part of the business, for example, 2% of one of the subsidiaries, then this share will be shown under equity as non-controlling or minority interests.



What is the difference between share capital and share premium?

The share capital is the nominal value of all investments in the business by shareholders.

The sale of additional shares at a premium to the original or nominal value at which the initial shares were issued would be accounted for as shown:

Nominal value $450 per share
Additional shares sold at $500 per share.
For each share sold for $500 each, $50 would be accounted for as share premium and the remaining $450 would be accounted for as share capital.

Share premium is the premium over and above the nominal value of the share.  



What is a revaluation reserve?

Company A bought a building for $1 million and that building was now worth $2 million.  The company might decide to increase the property, plant and equipment on the balance sheet by $1 million.

In order for the balance sheet to continue to balance, the equity section of the balance sheet must, therefore, also increase by $1 million.

Company A cannot increase the called up share capital or share premium accounts, as there has been no additional investment in the company.

It cannot increase the retained earnings figure because it has not made a profit on the building (Company A can recognise a profit on the building only when it actually sells the asset).

It may, therefore, choose to set up a revaluation reserve to account for the increase in the value of the building.  This would appear in the equity section as other reserves.

In effect, an increase in the value of the building is merely an increase in the amount that Company A now owes to the shareholders.

Balance Sheet

Warren Buffett's Interpretation of Financial Statements and Analysis

Warren Buffett's Interpretation of Financial Statements and Analysis




Warren Buffett's Interpretation of the Income Statement and Analysis



Warren Buffett's Interpretation of a Balance Sheet and Analysis



Warren Buffett's Interpretation of Cash Flows and Analysis

Financial Statements: Introduction

Table of Contents

1. Financial Statements: Introduction
2. Financial Statements: Who's In Charge?
3. Financial Statements: The System
4. Financial Statements: Cash Flow
5. Financial Statements: Earnings
6. Financial Statements: Revenue
7. Financial Statements: Working Capital
8. Financial Statements: Long-Lived Assets
9. Financial Statements: Long-Term Liabilities
10. Financial Statements: Pension Plans
11. Financial Statements: Conclusion

Financial Statements:

Introduction
By David Harper

Whether you watch analysts on CNBC or read articles in The Wall Street Journal, you'll hear experts insisting on the importance of "doing your homework" before investing in a company. In other words, investors should dig deep into the company's financial statements and analyze everything from the auditor's report to the footnotes. But what does this advice really mean, and how does an investor follow it?

The aim of this tutorial is to answer these questions by providing a succinct yet advanced overview of financial statements analysis. If you already have a grasp of the definition of the balance sheet and the structure of an income statement, this tutorial will give you a deeper understanding of how to analyze these reports and how to identify the "red flags" and "gold nuggets" of a company. In other words, it will teach you the important factors that make or break an investment decision.

If you are new to financial statements, don't despair - you can get the background knowledge you need in the Intro To Fundamental Analysis tutorial. Read more: http://www.investopedia.com/university/financialstatements/#ixzz279MZnu00

Cash flow 3D

http://www.invalueable.net/fs_overview.html

Financial Statements 101

Table of Contents

1. Understanding Financial Statements
2. Balance Sheet
3. Income Statement
4. Statement of Cash Flows
5. Statement of Retained Earnings
6. Intrinsic Valuation Modeler™ and Putting it all Together

Cooking the Books: Sweetening the Balance Sheet

Most often both the Balance Sheet and the Income Statement are involved in cooking the books.  A convenient cooking is exchanging assets with the purpose of inflating the Balance Sheet and showing a profit on the Income Statement as well!

For example, a company owns an old warehouse, valued on the company books at $500,000, its original cost minus years of accumulated depreciation.  In fact, the present value of the warehouse if sold would be 10 times its book value, or $5 million.  The company sells the warehouse, books a $4.5 million profit and then buys a similar warehouse next door for $5 million.

Nothing has really changed.  The company still has a warehouse, but the new one is valued on the books at its purchase price of $5 million instead of the lower depreciated cost of the original warehouse.  The company has booked a $4.5 million gain, yet it has less cash on hand than it had before this sell-buy transaction.

Why would a company exchange one asset for a very similar one ... especially if it cost them cash and an unnecessary tax payment?  The only "real" effect of this transaction is the sale of an undervalued asset and booking of a one-time gain.  If the company reports this gain as part of "operating income,": the books have been cooked - income has been deceptively inflated.  If the company purports that this one-time capital gain is reoccurring operating income, it has misrepresented the earning capacity of the enterprise.

Related:

• Cooking the Books: Why do managers cook the books?
• Cooking the Books: This is very different from "Creative Accounting"
• Cooking the Books: Puffing up the Income Statement
• Cooking the Books: Techniques to Puff Up the Income Statement
• Cooking the Books: Sweetening the Balance Sheet
• Cooking the Books: Techniques to Sweeten the Balance Sheet
• Cooking the Books: The Auditor's Job
• Cooking the Books: Investors, be warned.

Cooking the Books: Why do managers cook the books?

Managers most often cook the books for personal financial gain -

• to justify a bonus, 
• to keep stock prices high and options valuable or 
• to hide a business's poor performance.

Companies most likely to cook their books have weak internal controls and have a management of questionable character facing extreme pressure to perform.

"Cooking the books" means intentionally hiding or distorting the real financial performance or actual financial condition of a company.

Cooking is most often accomplished by moving items that should be on the Income Statement onto the Balance Sheet and sometimes vice versa.

A variety of specific techniques can be used to raise or lower income, raise or lower revenue, raise or lower assets and liabilities, and thereby reach whatever felonious objective the businessperson desires.  A simple method is outright lying by making fictitious transactions or ignoring required ones.

Related:

• Cooking the Books: Why do managers cook the books?
• Cooking the Books: This is very different from "Creative Accounting"
• Cooking the Books: Puffing up the Income Statement
• Cooking the Books: Techniques to Puff Up the Income Statement
• Cooking the Books: Sweetening the Balance Sheet
• Cooking the Books: Techniques to Sweeten the Balance Sheet
• Cooking the Books: The Auditor's Job
• Cooking the Books: Investors, be warned.

Cooking the Books: Techniques to Sweeten the Balance Sheet

C. Improperly increased or shifted period income.

D. Improperly increased assets and equity.

C.  Improperly increased or shifted period income

C1.  Current expenses shifted into later period

• C1a.  Improperly capitalized costs as inventory.
• C1b.  Assets depreciated or amortized too slowly.
• C1c.  Worthless asset not written off immediately.

C2.  Shift revenue and income into later periods with reserves.

D.  Improperly increased assets and equity.

D1.  Increased equity through one-time gains

• D1a.  Report gains on exchange of similar assets
• D1b.  Report gains by selling undervalued assets
• D1c.  Retire debt.

D2.  Report revenue rather than liability on receipt of cash.

"Cooking the books" means intentionally hiding or distorting the real financial performance or actual financial condition of a company.

Related:

• Cooking the Books: Why do managers cook the books?
• Cooking the Books: This is very different from "Creative Accounting"
• Cooking the Books: Puffing up the Income Statement
• Cooking the Books: Techniques to Puff Up the Income Statement
• Cooking the Books: Sweetening the Balance Sheet
• Cooking the Books: Techniques to Sweeten the Balance Sheet
• Cooking the Books: The Auditor's Job
• Cooking the Books: Investors, be warned.