Accounting for Growth and Financial Deception

About this episode

This episode discusses Terry Smith's book 'Accounting for Growth', which highlights creative accounting techniques and their impact on investment decisions.

"Accounting for Growth" by Terry Smith function as a critical guide intended to help readers avoid making poor investment choices by identifying and understanding various creative accounting techniques . The text explores numerous methods used by UK companies in the 1980s and early 1990s to manipulate reported profits, often at the expense of balance sheet health, including complex strategies related to acquisitions and disposals , off-balance sheet finance , and the accounting treatment of items like goodwill and pension fund surpluses . Smith introduces a simple "blob guide" checklist, which proved highly accurate in predicting disastrous share price performance for companies utilizing multiple techniques, exemplified by cases like Maxwell Communications and Polly Peck . Fundamentally, the book emphasizes the crucial distinction between reported "profit" (an opinion) and cash (a fact) , asserting that ultimately, cash flow dictates a business's survival.

People in this episode

Host: Chris Guo

Topics covered

• creative accounting
• investment choices
• financial deception
• cash flow
• profit vs cash

Keywords

• accounting
• financial health
• investment
• profit manipulation
• cash flow

Mentioned in this episode

Organizations: Maxwell Communications, Polly Peck

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