65-Day Academy · Day 18 · Fundamentals
Reading the Accrual Warning Signs
The classic tells
Earnings outrunning cash for multiple years, receivables growing 2× faster than revenue (booking sales customers won't pay), inventory ballooning (demand actually soft), "one-time" charges recurring annually, and auditor/CFO churn. Any ONE is a question; two or more together are an exit. The great frauds (Enron, Wirecard, Luckin) showed most of these in plain sight for quarters before the collapse.
The 60-second check
Compare 3-year revenue growth vs 3-year operating-cash-flow growth vs receivables growth. Cash should track or beat revenue; receivables should not outrun revenue. If the pattern inverts, the income statement is telling a story the cash isn't funding — believe the cash.
What you'll practise
Which patterns are classic earnings-quality red flags? (Select all that apply)
15 XP in the app · intermediate
Sources
- Financial ShenanigansHoward Schilit
- Accruals & Earnings QualityInvestopedia
Take this lesson graded in the app →
All lessons are for educational purposes only and are not individualized financial advice, a recommendation, or a solicitation to buy or sell any security. Options involve substantial risk and are not suitable for every investor.