IFB299: Red Flags in a Company’s Financials

Welcome to the Investing for Beginners podcast! In today’s episode we will be talking all about red flags of a businesses’ financials and why we should look out for it. Red flags can either be really obvious or hidden deeper in the numbers and in this episode we will take a deep dive on each of them. Listen on as we discuss the questions you should ask yourself in encountering these red flags.

Timestamps of the episode:

-From profitable to non-profitable, a common overlooked red flag on businesses. [01:45]

-Increasing debt to equity ratio, another rising red flag that has been proven to be detrimental in the future of a business [04:00]

-Red flags are not necessarily deal breakers (mostly it is) but should make you ask yourself questions as to why it can be long term or not. [10:58]

-Why sometimes a increasing goodwill of an asset acquired can be a red flag. [14:24]

-Impairment losses are red flags and punishment for companies paying too much. It says a lot on the management’s skill of doing acquisitions. [19:30]

-Serial acquirers can either be great or bad as M&A’s should be value accretive. Goodwill is the one to look out for on these companies. [28:30]

-Decreasing return on invested capital (ROIC) and gross margins are another red flag of a business. [30:05]

-A plethora of red flags is not a sign to short a company. [36:10]

Note: Timestamps may differ and are approximate, depending on your podcast player.

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Today’s show is sponsored by Factor:

Head to factormeals.com/investing50 and use code investing50 to get 50% off.


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You can find the transcript of today’s show below:

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