Red flags in the numbers

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Key idea: A few patterns, such as rising share counts, profits without cash and growing debt, often show up before the bad news does.

Some warning signs show up in the numbers well before the headlines. Four worth checking on any company:

Share count creeping up. If the number of shares grows 5-10% a year, each existing share owns a shrinking slice. Stock-based pay and repeated share sales are common causes.

Profit without cash. Reported earnings rising while operating cash flow stays flat or falls can mean aggressive accounting or customers who are slow to pay.

Debt rising faster than profit, and financial-distress scores such as the Altman Z-score sliding toward the danger zone. On their own none of these proves a problem, but several together deserve a hard look. Equity Rank's stock pages show red flags like these next to the fair value, so you see the risks before the headline number.

Quick check

A company's reported profit has doubled in three years, but its operating cash flow has not grown at all. What does this suggest?

Read the glossary entry for Altman Z-score and other terms →

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