David Rosenthal: evaluation

Transcript context

…This, of course, is a thing that short sellers pay a lot of attention to. They look for companies that have all those metrics that we just described trending in exactly those directions, because that's probably where there's a big accounting issue that's about to happen. The big cognitive dissonance, I think, is the reported profits versus the cash flow, because if you think about startups, lots of startups for instance can be reporting high revenue growth but be burning lots of cash as they're investing in growth, operations, and whatnot. In Enron's case and in the case of a lot of frauds, they're reporting high revenue growth and high profits on the income statement, but also burning cash. Yup. People are starting to figure this out. Short sellers, journalists, and eventually, finally, finally some analysts managed to shake loose of the ‘my job is to say Enron is awesome’ thing. They start to ask hard questions on earnings calls, because for the longest time, it has been that you were rewarded for saying Enron is great because the stock would go up, and then you would look like a genius. Anytime anybody said Enron wasn't great, either they were proven wrong by the stock price or they would get slapped at work, because they're saying, hey, that's a huge client of ours. We do lots of business with them, because Enron did lots of business with everybody.…

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