Unreliable profits

Warren Buffett gave two rules for successful investing, 'Rule No. 1: Never lose money. Rule No. 2: Don't forget rule No. 1.' What he meant by these two rules was that protecting the capital invested is of the utmost importance. In the past, investors have lost billions in companies like Satyam and 8K Miles, amongst several others. These companies looked wonderful from an investment standpoint but in reality their books were cooked. That is why, in order to protect your capital, you must avoid companies that have low-quality accounting standards. Fraudulent companies can cook their books in several ways. One such method is aggressive revenue-recognition policies. Such policies allow companies to inflate their revenues. How do companies artificially inflate their revenues? They do so by resorting to practices like channel stuffing, providing extended credit period, etc. Channel stuffing is shipping more goods to distributors and retailers than end-users are like