Cash flow is sometimes viewed as a more reliable number than earnings because it cannot be manipulated. But it can.
Chemours Company (CC) sells performance chemicals necessary for many products, including pigments, surface coating protection, and ingredients in refrigerants, solvents, and propellants. In the autumn of 2023, the stock priced dropped about 40% on concerns about accounting problem sparked by an anonymous tipster on the firm ethics hotline. In March 2024, the audit committee of the board reported the results of their investigation into the matter. They found that management had manipulated cash flow by delaying the payment to vendors in the fourth quarter of fiscal-year 2023 and accelerating collection of accounts receivable.
Why the manipulation? Free cash flow was a considerable part of the target for executives to receive stock and bonus awards.
Free cash flow can also be manipulated by timing CapEx, cash R&D expenditures, advertising expenditures, as well as cash from receivables and cash paid on payables and accrued expense liabilities. Shifting from cash compensation to stock compensation also affects cash flow.
Note that the manipulation of cash flows does not affect earnings reported.