Investment tools for private investors

Financial Statement Red Flags Detector

The Financial Statement Red Flags Detector analyses the financial statements to provide a general overview of the various warning signs & risk factors investors should take note of. They do not necessary suggest fraud but merely indicator that further in-depth research is needed to ensure the safety of your investments.


  • Detecting improper revenue recognition
  • Discovering overstatement of assets
  • Revealing earnings quality issues
  • Exposing financial health deterioration
  • Identifying cash flow generation problems
Financial Statement Red Flags Detector

Discover financial red flags & investment risk factors.

+More red flags to look out for

  • Checkout the management team. Run internet searches on the CEO and CFO to see whether they have been involved in failed or dishonest businesses. Watch out for lavish lifestyle, holds excessive number of directorships in other companies and self-promoting activities in the media. Exception leaders tend to be humble, dare to think independently and have mega big long-term goal.
  • Read the financial statement footnotes. Footnotes tend to be wordy and deemed to be boring. To protect you investments you must comb the footnotes looking for changes in accounting policies, conflict of interest related party transactions, large pension liabilities & over optimistic growth rate assumption, pending investigation by the government or regulators, conditions for executive compensation and use of pro-forma or EBITDA to boast about the company’s financial performance.
  • The sudden resignation of the finance director when the company’s performance is poor. When CFO change comes, most companies take great care to ensure shareholders of a smooth transition by announcing it normally 6 months in advance. Also watch out for CEO or CFO sold almost entire holdings when share price is on the way down.
  • A rapid surge in the company’s performance within the final quarter of the fiscal year. Management may be tempted to use financial engineering to meet analysts’ expectations.
  • Tax rates that fall outside the normal range often can be a sign of tax tinkering at the company. Any negative tax rate is a particular cause for concern, especially if the company is reporting a profit to shareholders.