|The Merriam Report Quality of Earnings Advantage
Powerful investment research to invest successfully in today's volatile stock market
The Merriam Report is uniquely different from traditional fundamental analysis because it focuses on the accounting methods used by
management to present earnings.
P/E ratios, price-to-sales, return-on-equity, return-on-assets, etc., are important tools in evaluating a stock's potential, but meaningless if the
data is skewed by overzealous or creative accounting. The MR is designed to provide these clues by analyzing changes in the reported
financial statements and their relationship to declared earnings.
It's all about the cash-flow
The MR identifies how much "wiggle room" a company used to build the earnings numbers. Specifically, it reveals whether earnings are
supported by actual cash-flow from operations or if earnings were "propped" up by balance-sheet engineering.
If a company is pulling levers to make their numbers, cash-flow will eventually dry up. Cash-flow is the oil of any company's engine. Without it,
the motor seizes to a grinding halt. Weakening earnings quality will inevitably have a negative impact on the stock price.
The Merriam Report research platform is based on the concept of "dual-cash flow" analysis. Unlike traditional analysis, MR examines the
numbers differently by comparing changes in operating cash-flow and non-operating cash flow with changes to income and non-income
The MR's unique algorithm analyzes these relationships to reveal bullish / bearish trends emerging in the data. Clearly defined indicators and
signals tell the reader if earnings quality is improving or declining.
More importantly, it reveals any shift in the accounting techniques used by management to build the earnings report. The MR identifies
whether cash-flows came from paying customers or generated by balance sheet maneuvers.
Predictive Analysis with Proven Results
The Merriam Report has shown to be remarkably accurate and effective in identifying trends in earnings quality. As a predictive analysis
tool, the MR has proven quite successful in identifying potential opportunities or potential problems months before traditional analysis
It revealed problems at Sunbeam during the Al "chainsaw" Dunlop years and exposed the clowns at Enron months before other analysts did.
The Merriam Report is not a day-trading tool, but it will give investors a good idea of what's lurking around the corner.
This approach provides portfolio managers, institutions and now the average investor with time to move in or out of a position before others
on the street detect the same signals, or before the market starts to change direction.
History Provides Valuable Clues to the Future
Financial statements are historical documents which reveal a company's financial situation at a particular point in time. The MR analyzes a
company's financial history over a seven quarter period. It detects and identifies patterns and trends in accounting methods used by
Not only is dual cash-flow and accrual analysis effective in periods of rapid growth, it is especially useful and necessary for volatile and
unstable markets like investors have faced recently. Company managers are more likely to push the envelope when times are tough.
Although SEC and regulatory oversight has improved somewhat in recent years, Sarbanes-Oxley remains weak and corporate executives still
have many perfectly legal accounting "techniques" they can use under current GAAP and FASB rules.
Now, more than ever, investors will benefit from the Merriam Report analysis
Dual cash-flow and accrual analysis won't provide all the answers, but it will answer the most important ones when evaluating financial
statements. It is designed to be a primary and initial screen for our investment selection process.
Whether you are a professional investor, student or beginning investor, the Merriam Report offers rich and in depth institutional quality
investment research in a easy to read format. The comprehensive analysis eliminates hours of research time.
In addition to being a superb primary fundamental analysis screen, the MR is also an excellent tool for confirming or validating technical
analysis. It can also be used to screen fixed income securities, ETF's and closed-end funds.
Please Note: The MR is not recommended for banks, insurance and other financial securities. These types of companies have
different capital structures and rely heavily on accounting assumptions.
|Merriam Report Dual Cash-Flow Advantage
Dual-cash analysis was
developed more than 15
years ago by Harry Ernst
and Jeff Fotta.
Their DCF model was
originally designed to
managers of fast growing
firms balance liquidity
needs, and create
shareholder wealth for
This pioneering research
also showed the
dual-cash flow concept
to be an excellent
predictive analysis tool
for researching stocks.
MIS applied this unique
methodology as a
primary screen for their
The Merriam Report is
the culmination to more
than ten years of
research, testing and
application of this
remarkable and effective