Olstein's Top Twenty Quality of Earnings Alerts
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1. Material deviations between net income and free cash flow
2. Material differences between the tax books and shareholder books as measured by deferred taxes
3. Material changes in balance sheet debt and liquidity ratios
4. Inventories, especially finished goods or raw materials, increasing or decreasing faster than sales
5. Accounts receivable increasing or decreasing faster than revenue
6. Deviations between depreciation and capital expenditures
7. The repetitiveness and materiality of non-recurring write-offs
8. The role that non-trend line changes in reserves contribute to, or negatively impact, current earnings
9. The repetitiveness and materiality of non-recurring gains such as sales from venture capital portfolios
10. The impact and reality of a company’s deferred expense capitalization policies as it effects reported free cash flow
11. Discretionary expenses deviating materially above and below trend lines
12. The reality, consistency and conservativeness of revenue recognition techniques when measured against the passing of cash
13. The impact that acquisitions have on sustainable free cash flow and the growth thereof
14. Changes in other asset accounts
15. The impact of transactions with special-purpose vehicles
16. Pension income and expense recognition measured against the pension plan’s assumptions and the funded status of the plan
17. Large deviations between pro forma and reported earnings
18. The impact of option transactions on reported free cash flow and the impact on future results and valuations of the company
19. The capabilities of management as measured by their long-term decision-making capabilities; especially when problems develop; their attitude toward risk as measured by the quality of the balance sheet; and their preparation for a rainy day; their methodology of communicating with shareholders; and finally their ability and emphasis on returning value to shareholders
20. Disclosure of material information needed to assess the value of the company
