Question 1

How to detect financial fraud?

Accepted Answer

Watch for 15 red flags: abnormal AR growth, operating cash flow consistently below net income, abnormally high gross margin, inventory buildup, high goodwill ratio, etc.

Question 2

Which financial metrics matter most?

Accepted Answer

Focus on: Operating CF/Net Income ratio (>0.7), AR growth vs revenue growth, gross margin trends, and debt-to-equity ratio.

Financial Statement Checklist

Revenue inflation: Early recognition, fictitious sales, related-party transactions.
Expense hiding: Capitalizing expenses, under-depreciation.
Cash flow issues: Operating cash flow consistently below net income.
AR anomalies: Receivables growing faster than revenue.
Inventory buildup: Inventory growing faster than sales.

Common Financial Manipulation