• The simplest way to detect aggressive accounting is to compare the trend of net income
with the trend in cash flow from operations. If net income is growing quickly while
cash flow is flat or declining, there's a good chance of trouble lurking.
• Companies that make numerous acquisitions or take many one-time
charges are more likely to have aggressive accounting. Be wary if a firm's
chief financial officer leaves or if the firm changes auditors.
• Watch the trend of accounts receivable relative to sales. If accounts re
ceivable is growing much faster than sales, the company may be having
trouble collecting cash from its customers.
• Pension income and gains from investments can boost reported net in come, but don't confuse them with solid results from the company's core operations.
