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Problem Three: Identifying Red Flags

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Problem Three: Identifying red flags
One step in assessing the quality of earnings is to look for red flags. An example of a red flag is a significant increase in accounts receivable without commensurate growth in sales (that is, accounts receivable turnover decreases). List five other red flags an astute analyst might look for. Also, provide the reason for it being a red flag, and identify where the analyst might find this information.


Definitions:

Right Parietal Lobe

A region of the brain associated with processing visual information and spatial orientation.

Visual Space

The perceptual space surrounding an individual in which objects are visually perceived and oriented.

Controlled Process

A type of mental activity that requires conscious thought, often demanding effort and attention to perform.

Telegraph Message

A communication transmitted via telegraph, a device for sending messages over long distances using a system of codes or Morse code.

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