Accounting quality

Over the whole life of a company, total reported profit equals total cash generated. Nothing an accountant does changes that sum. What accounting does is decide which period each piece of it lands in, and that decision is made by the company reporting the result.

So every accounting-quality question is a timing question, and every timing question reverses. Income pulled into this year is income missing from a later one. A cost pushed out to a later year arrives in it. The analyst's job is not to catch a lie. It is to work out which period an allocation belongs to and when it will come back.

This course sits between the statements and the ratios on purpose. Every ratio in the courses that follow is a quotient of two reported numbers. A ratio computed from a figure that was chosen rather than measured is a precise wrong answer, and a precise wrong answer is worse than no answer, because arithmetic lends it authority the input never had. Learn return on capital first and you will spend a year computing it carefully on numbers you never questioned.

The order matters more than the coverage. The previous course taught where a number lives. This one asks whether it means what it appears to mean, which policy produced it, and what would have to be true for it to reverse.

Nothing here requires an accounting qualification. Every worked example is arithmetic on round invented numbers, labelled as such, so you can check each line by hand and disagree with the conclusion if the arithmetic does not support it.

Where this sits

Second of nine courses. It assumes Reading financial statements and it is assumed by everything after it. The placement is the argument: a return on capital computed from a number that was chosen rather than measured is a precise wrong answer, and precision is what makes it dangerous. Financial health follows, and asks what the company owes.