Misrepresented Cash Flows

The statement of cash flows is the third major financial statement, which tallies cash generated and spent by a company during a fiscal period. This portion of the financial statement of an earnings release is one of the best ways to gauge a company’s solvency and actual performance.

WorldCom used its cash flows statement to hide expenses by marking operating costs, which should have been booked as expenses, as capital investments. Under that plan, WorldCom inflated cash flow by $3.8 billion and posted quarters of positive performance when it really lost money.