The March 5, 2002, edition of the Wall Street Journal included an article by Mark Maremont entitled

“How Is Tyco Accounting for Its Cash Flow?—Its Touted Measure of Strength Leaves Room for Interpretation.”

Instructions Read the article and answer the following questions.

(a) Many analysts believe that cash flow is not as susceptible to “reporting manipulation” as income.

What “complications” discussed in this article make that belief questionable?

(b) What is “free cash flow”? How was Tyco manipulating its reporting of “free cash flow”?

(c) Under U.S. GAAP, how is free cash flow determined?

(d) How is Tyco “buying earnings and operating cash flow”? Why is this practice risky for investors?