Spot the Red Flags in a cash Flow Statement:

EDS and Cerner Corporation

Below are portions of the cash flow statements for Electrpnic Data Systems (EDS) and Cerner Corporation. Spot the Red Flags.

ELECTRONIC DATA SYSTEM AND SUBSIDIARIES

(in milion)
Year Ended December 31,
2001 2000 1999
Cash flows from operating activities
Net Income $1,363 $1,143 $421
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,482 1,431 1,436
Deferred compensation 98 101 113
Asset write downs, including acquired in-process R&D 91 43 129
Other (340) (187) (229)
Changes in operating assets and liabilities,
net of effects of acquired companies:
Accounts receivable and unbilled revenue (882) (386) (185)
Predpaids and other 202 (87) 90
Accounts payable and accrued liabilities (481) (305) 368
Deferred revenue (138) (156) 162
Income taxes 327 (38) (369)
Total adjustments 359 416 1,515
Net cash provided by operating activities 1,722 1,559 1,936

CERNER CORPORATION
(in thousands)
Six Months Edited
June 29, June 30,
2002 2001
Cash flows from operating activities:
Net earnings (loss) $24,310 ($62,655)
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities:
Depreciation and amortization 27,168 23,580
Common stock received as consideration for
sale of license software - (750)
Write-off of goodwill impairement 1,272 -
Gain on sale of investment (4,308) -
Realized loss on sale of stock - 385
Write-down of investment - 127,616
Gain on software license settlement - (7,580)
Non-employee stock option
compensation expense 34 56
Equity in losses of affiliates - 1,093
Provision for deferred income taxes (29,627) 44,801
Changes in assets and liabilities
(net of business acquired):
Receivables, net (28,817) (4,582)
Inventory (1,406) 1,166
Prepaid expenses and others (4,400) (5,601)
Accounts payable 4,895 6,644
Accrued income taxes 35,413 5,958
Deferred revenue (12,641) (8,304)
Other acrrued liabilities (3,443) 1,160
Total adjustments (15,860) 96,040
Net cash provided by operating activities 8,450 33,385

CERNER CORPORATION
(in thousands)
Six Months Edited
June 29, June 30,
2002 2001
Cash flows from investing activities:
Purchase of capital equipment (21,493) (8,150)
Purchase of land, buildings,
and improvements (5,484) (4,356)
Acquisition of business (13,429) -
Investment in investee companies - (1,292)
Proceeds from sale of available - for sale- securities 90,119 1,572
Issuance of notes receivable - (100)
Repayment of notes receivable - 89
Capitalized software develo[pment costs (22,915) (18,179)
Net cash provided by (used in) investing activities 26,798 (30,416)
orporation. Spot the Red Flags.
 Spot the Red Flags in a cash Flow Statement:
EDS Corporation
Below are portions of the cash flow statements for Electrpnic Data Systems (EDS) . Spot the Red Flags.

ELECTRONIC DATA SYSTEM AND SUBSIDIARIES

(in milion)
Year Ended December 31,
2001 2000 1999
Cash flows from operating activities
1 Net Income $1,363 $1,143 $421 NI
Adjustments to reconcile net income to net
cash provided by operating activities:
2 Depreciation and amortization 1,482 1,431 1,436
3 Deferred compensation 98 101 113
4 Asset write downs, including acquired in-process R&D 91 43 129
5 Other (340) (187) (229)
Changes in operating assets and liabilities,
net of effects of acquired companies:
6 Accounts receivable (882) (386) (185)
7 Pre-paids and other 202 (87) 90
8 Accounts payable and accrued liabilities (481) (305) 368
9 Deferred revenue (138) (156) 162
10 Income taxes 327 (38) (369)
11 Total adjustments 359 416 1,515
12 Net cash provided by operating activities 1,722 1,559 1,936 CFFO
Analysis
1 NI/CFFO 79.15% 73.32% 21.75%

2 Dep & Amort/NI 1.087307 1.25197 3.41093

Amount is nearly constant however NI is increasing
3 NI Growth 1.192476 2.71496
4 CFFO Growth 10.46% -19.47%
QE = CFFO/NI 1.26339 1.36395 4.59857

1. Cash realization ratios (Quality of Earnings less than one are considered to be an indicator of
low earnings quality due to a high aggregate accrual component.
2. In this case the QE ratio is declining. Reasons must be found out.
 Spot the Red Flags in a cash Flow Statement:
Below are portions of the cash flow statements for Cerner Corporation. Spot the Red Flags.
CERNER CORPORATION
(in thousands)
Six Months Edited
June 29, June 30,
2002 2001
Cash flows from operating activities:
Net earnings (loss) $24,310 ($62,655)
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities:
Depreciation and amortization 27,168 23,580
Common stock received as consideration for
sale of license software - (750)
Write-off of goodwill impairement 1,272 -
1 Gain on sale of investment (4,308) -
Realized loss on sale of stock - 385
2 Write-down of investment - 127,616 Earlier this amount was de
Gain on software license settlement - (7,580)
Non-employee stock option
compensation expense 34 56
Equity in losses of affiliates - 1,093
3 Provision for deferred income taxes (29,627) 44,801
Changes in assets and liabilities
(net of business acquired):
4 Receivables, net (28,817) (4,582) Large increase in receivab
Inventory (1,406) 1,166
Prepaid expenses and others (4,400) (5,601)
Accounts payable 4,895 6,644
Accrued income taxes 35,413 5,958
5 Deferred revenue (12,641) (8,304) Deferred Revenues have b
6 Other acrrued liabilities (3,443) 1,160
Total adjustments (15,860) 96,040
Net cash provided by operating activities 8,450 33,385
CERNER CORPORATION
(in thousands)
Six Months Edited
June 29, June 30,
2002 2001
Cash flows from investing activities:
Purchase of capital equipment (21,493) (8,150)
Purchase of land, buildings,
and improvements (5,484) (4,356)
Acquisition of business (13,429) -
Investment in investee companies - (1,292)
Proceeds from sale of available - for sale- securities 90,119 1,572
Issuance of notes receivable - (100)
Repayment of notes receivable - 89
7 Capitalized software develo[pment costs (22,915) (18,179)
8 Net cash provided by (used in) investing activities 26,798 (30,416)
Earlier this amount was debited in PL Account hence NI was reduced - since non cash hence added back.

Large increase in receivables- Check the Quality of Receivables

Deferred Revenues have been reduced in both 2001 and 2002.