The Analyst’s Course · Forensic Accounting
The Full Forensic Workflow — Certify or Reject
Step 1–2: triage and decomposition
Step 1 — the EQ screen: cash conversion ≥0.9×? Accruals ratio ≤ +4%? FCF conversion positive? Anything failing lands in the "investigate" pile, not the trash — single-year investment cycles distort. Step 2 — DuPont: decompose ROE. Is the return margin-made (durable) or multiplier-made (fragile)? For financials, skip most of this track — the model breaks (banks are structurally levered) and you use different metrics (P/TBV, NIM) covered in the valuation track.
Step 3–4: the probes
Step 3 — Altman Z with the right flavor: a distress or grey reading on a non-financial flips the entire case from "is this cheap?" to "does this survive?" — the question order changes. Step 4 — Beneish M with drivers: one benign driver with explanation passes; a cluster (DSRI + AQI + DEPI rising together) means the next hour is spent in footnotes — receivable concentration, capitalized costs, related-party revenue — before any price work.
Step 5: the verdict
Write it down in two sentences: (a) does cash confirm earnings — yes/no/with-exceptions; (b) what is the single biggest unexplained item? That document is the certificate. Then — and only then — the valuation track gets to talk about price. The graded exercise in this lesson runs the whole loop on a live ticker using real SEC filings: pick a company, run the panel, write the verdict, and defend it against the checkpoint questions below.
The workflow's real payoff
Practitioners who ran this exact stack in 2020–2021 on the SPAC cohort uniformly produced verdicts like: "cash does not confirm earnings; biggest unexplained item is the discounted warrant liability in adjusted metrics." Those verdicts cost nothing to write and were worth a fortune in avoided losses by mid-2022. The workflow's value is concentrated in what it prevents — which is why its output is a written certificate, not a score.
What you'll practise
A grey-zone Altman Z on a non-financial company changes the workflow by…
3 graded checkpoints · certification exam at the end of the track
Sources
Altman (1968); Beneish (1999); Sloan (1996); company 10-K filings via SEC EDGAR
Learn content is for education only — not individualized financial advice, a recommendation, or a solicitation to buy or sell any security. Options involve substantial risk. Examples are simplified and historical patterns never guarantee future results.