By Karen Talley
Dow Jones News Service
(Copyright (c) 2002, Dow Jones & Company, Inc.)

NEW YORK -(Dow Jones)- Self analysis. That's what it may come to in this era of Enron and questions about analysts' objectivity.

A new service allows investors to do their own analysis of public companies through a website that primarily supplies information about how well a company generates cash. The product - Stock Diagnostics - is believed to be among the first of many such services that are expected to begin cropping up.

Whether these companies are capitalizing on a barrage of bad publicity for Wall Street or are bona fide services that provide information investors are sorely lacking, what's for sure is that investors may see a slew of new research tools being rolled out.

"Face it," said Ron Erickson, the man behind Stock Diagnostics, "There has arisen an element of mistrust around analysts."

This is especially true when it comes to the way analysts tend to praise earnings announcements, even if the company has excluded negative information, said Erickson, whose background includes being a co-founder of EggHead Software, which pioneered computer product retailing but ended up closing its stores as computer companies began selling directly to customers.

What Stock Diagnostics does is identify companies that are reporting record earnings, which may have left out certain items, and have negative operational cash flow per share. "Earnings are often managed numbers that don't accurately reflect what's really going on at a company," Erickson said. "Looking beneath the surface has become especially necessary."

The reasoning is healthy companies derive a lot of their sales and profits from their products and services, which gives them positive operational cash flow. But unhealthy companies may use proceeds from loans, additional stock offerings or sold units to bulk up revenue and thus profits. "If you are in business your primary business must be generating cash flow," Erickson said. He added that often, companies that are posting record earnings and negative cash-flow have high stock prices, because investors peg off the earning part, and very high insider selling, because executives recognize the true condition.

Mike Markowski, director of research at Stock Diagnostics, said analysis of 7500 fourth quarter 2001 reports turned up 51 showing record earnings and negative cash flow, a condition the company calls "EPS Syndrome." Going back five years, the program tagged 1400 companies, Markowski said.

Services like Stock Diagnostics "are an exciting development as long as they are quality tools," said William Goetzmann, finance professor at the Yale University School of Management."They would move the marketplace for providing information to a whole new level," giving people another way to evaluate stock prices.

But a cautious approach is warranted, some said. "These people are identifying a need and filling that need with a product," said Edwin Ruh, chairman of the Veritas Venture Lab, who is seeing more of these types of services popping up.

But investors should recognize these companies are no different than investment firms in that both are motivated by making money, Ruh said. In Stock Diagnostics ' case, the service will be marketed for $29.95 a month to individual investors, brokers and others with an interest in stocks.

Erickson even boldly - or impishly - said the service will be offered to analysts. "Who knows, maybe they would welcome another tool," he said.

-Karen Talley; Dow Jones Newswires