Red flag
Also called: red flags, warning sign
A pattern in a company's accounts or disclosures that may have an innocent explanation but is common before problems emerge.
Examples include profit that does not become cash, receivables growing faster than sales, recurring "one-off" items, accounting policy changes, high cash alongside high debt, large loans to group companies and auditor resignations. One flag calls for investigation; several together call for great caution.
Learn more in these lessons
- Financial red flagsWhat warning signs in a company's accounts should make you look harder?
- Accounting manipulation and fraud indicatorsHow are company accounts manipulated, and can outsiders spot it?
- Identifying red flags in practiceHow do you find warning signs in a company's filings and judge how serious they are?
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