"I don't know, Pork Belly. I just don't know," hedged Neezer Lemke as he dabbed the corners of his mouth with a napkin. "Nice meat loaf in this place, though."

"Indeedy," replied Pork. "Yes indeedy. They treat me special here, that's why I keep coming back."

Pork had just suggested that Neezer buy 1,000 shares of New Nostril [Nasdaq: NAZL] at the opening bell. New Nostril made a revolutionary new nose care gel which gave nostrils an attractive, glossy sheen and made unruly septums lively and more manageable.

"Buy of the century," munched Pork through the crumbs of a hard roll.

"I don't know. I look at the annual report, and I see nothing but red flags here," said Neezer. "For starters, look at their cash position. I mean, I see these numbers, and I wonder how this company is going to meet its payroll, let alone fund future growth!"

"A mere pothole on the road to corporate success, son. Like all growing companies, New Nostril can borrow. You going to eat that kielbasa?" Pork snatched the sausage from Neezer's plate and ate it before Neezer could object.

"That's just it," Neezer countered. "They have been borrowing -- and aggressively. Their line of credit is almost maxed out here. This does not look good."

"You're worrying for nothing," said Pork. Pork signalled the kitchen, and a waiter wheeled a out a large tray of eclairs, handfuls of which Pork began to pop casually into his mouth, like M&Ms. The waiter hovered solicitously, like a corner man at a prize fight. When Pork had consumed the last pastry, the waiter brought out a sports bottle and squirted it at Pork's face, washing away the smudges of chocolate and cream around Pork Belly's mouth.

"Thank you, young man," said Pork. "You are a credit to your profession."

The waiter smiled, obviously pleased. In a practiced manner, he drew a large basket from under his cart, and presented it to Mr. Belly.

It was filled with walnuts. Pork began cracking them open, one by one.

"Now Mr. Lemke, there are all kinds of ways for a company to raise cash. They can sell a bond. They can issue more shares of stock. They can negotiate a new line of credit. They can sell off a division or two. This is a growing company, son. There are avenues open to them."

"True," replied Neezer. "But some of the things they're doing, I don't like at all. For example, their spending on Research and Development is way down. And the reserve for bad debts is diminishing, too... profit margins are narrowing, and production costs are increasing... The way this report is laid out, it looks like they're taking cash from every corner they can find it, just to keep the factory running."

Before long, Pork had amassed a large heap of shelled nuts on the table in front of him. Suddenly, he pitched face-forward into the pile, inhaling the nuts into his mouth at an astonishing rate, making little vacuum cleaner noises all the while. Neezer was impressed.

"What you don't understand, son, is that nostril care is a whole new industry. This company is a pioneer. And the territory before them is wide open."

Meanwhile, the restaurant staff had been busy erecting a large conveyor belt system near Pork's table. One end of the belt sat near Pork at just below eye level, while the other end passed through a pair of swinging doors and disappeared somewhere in the kitchen. On a signal from the maitre d', the waiter flipped a switch, and soon pie after fresh-baked pie began gliding down the belt and plopping square into Pork Belly's waiting mouth.

"I still don't know, Pork. I'm no expert, but everything I know about money tells me this company is on seriously shaky financial ground. I think it could go under at any moment."

Pork was so exasperated he actually stopped chewing. "Look," he said, levelling his eyes with Neezer's. "You don't have to take my word for it. That financial report has been approved by none other than Krelman and Papp, one of the finest accounting firms in the business. It's all right there on page 57."

Neezer flipped to the appropriate page. Sure enough, in large print, was an official-looking notice:

"We have audited the consolidated balance sheets of New Nostril Corporation and its subsidiaries as of December 31, 1996. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of New Nostril Corporation, and are in conformity with generally accepted accounting principles.

Krelman and Papp, LLP
New York, New York."

"Now I ask you," said Pork, "Would Mssrs. Papp and Krelman risk their hard-earned reputations by approving this report if the financial condition of this company were as bad as you say it is?"

Neezer swallowed hard. Where was that Motley Fool guy when you needed him?

*Neezer should ignore Pork Belly's argument because...?*

1) The accountant's signature is not relevant because any clever number-cruncher can make a failing company look like a rousing success.

2) The accountant's signature is only a formality.

3) An accountant's signature is not an endorsement of the stock as an investment, but merely approves the accounting methods that were used to prepare the report.

4) "Generally Accepted Accounting Priniciples" do not apply to publically traded companies, but only to privately held firms.

Enter your selection in the field to the lower right, and get immediate feedback on the answer!

"Sorry I'm late," said Motley Fool, doffing a black robe and a fake white beard. There was a hold-up with yesterday's episode."

"That's okay, Fool," said Neezer. "I can handle this one myself. The answer, Pork, is number 3 -- An accountant's signature is not an endorsement of the stock as an investment, but merely approves the accounting methods that were used to prepare the report. All annual reports are reviewed by an independent auditor as a check to make sure the information contained within them is accurately represented. To insure that no funny business is going on with the numbers, a set of Generally Accepted Accounting Principles has emerged, which standardizes reporting of financial data for all publically traded corporations. This makes it hard to fudge the data, and if trouble looms inside a company, clues will be easier to spot, if you know what to look for."

"Good work, Neezer!" said Motley. "I needn't have bothered coming this time."

Pork Belly shrugged his shoulders and resumed his place at the conveyor belt.

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