Red Flags that show a Company is in Real Trouble
- Huge Goodwill figure in Balance Sheet
- Current Ratio < 1
- High Debt-to-Equity (High Gearing)
- A very high number that is hidden in the notes, but not shown in the actual financial tables: Read the annual report backwards, because the stuff that directors really don't want you to find will be at the back.
- Cash Flow not in line with Earnings: Compare FCF/share with EPS
- Highlighted Adjusted EBITDA: This is directors' favourite number, because it always goes up
- Key Management Changes: either they were brilliant and have been poached or they were rubbish and have been dumped
- Directors dumping shares
- Having only one "reliable" customer (eg. government)
- Rapid Expansion: Expansion needs to be controlled