Some analysts believe cash-based numbers are more reliable than accrual-based numbers because they feel the adjustment process allows management too much discretion to manipulate the results. One analyst was overheard to say: "You can't always trust the profit figure reported, because of all the estimates and judgement that go into its determination. That's why I always compare accrual-based ratios with cash-based ratios when analyzing a company."
Instructions
Write a memo explaining the advantages and disadvantages of accrual-based ratios and cash-based ratios. Include in your answer a discussion of whether you think it is possible to manipulate cash-based figures, or only accrual-based figures.