External auditors raise red flags at 6 companies

Several accounting firms have raised red flags at six companies yesterday, indicating they could not complete their audits properly.

The companies are Nam Fatt Corp Bhd, Patimas Computers Bhd, Mangotone Group Bhd, Wawasan TKH Holdings Bhd, Luster Industries Bhd and KBB Resources Bhd, based on their announcements to Bursa Malaysia.

Five of them had their accounts qualified, which means that auditors had incomplete information for their work or they may disagree with the company's management on certain assumptions.

However, Luster's auditors, which is Grant Thornton, did not qualify its opinion but pointed out to shareholders that the company's fate rests on an approval by Bursa Malaysia Bhd.

Financially-troubled Luster, a precision plastic parts maker, had submitted its revamp plan on September 18 2009, which was rejected by Bursa on February 11 2010. It appealed on March 4 but Bursa has yet to decide.

Construction group Nam Fatt is also in trouble after it defaulted on some loans and made an operational loss of some RM560 million in the year to December 31 2009.

It has to submit a revamp plan a year from March 15 2010 and it has yet to finalise such a plan.

Accountants from Deloitte & Touche could not find enough audit evidence for doubtful debt provisions while audited accounts of certain subsidiaries were not available.

In this instance, Deloitte said this is in breach of the Companies Act.

In the case of Wawasan TKH, a disposable food packaging maker, its auditors BDO did not agree with the assumptions of its management.

Management thinks that certain assets worth RM83 million should not be impaired, or that the value should not fall, because of assumptions on sales growth of up to 19 per cent and gross profit margins of up to 18 per cent.

"These assumptions by their very nature, are difficult to substantiate given past actual outcomes and are regarded as significant areas of uncertainties," BDO said.

As for Patimas, its auditors do not share the management's optimism that it could recover money from a former subsidiary.

Auditors of Mangotone, which is undergoing a restructuring, could not find enough evidence to support their work while those of KBB were not present during the counting of finished goods at warehouses.

The vermicelli maker did not arrange for the presence of its external auditors during the counting of products worth some RM27 million.

http://www.btimes.com.my/Current_News/BTIMES/articles/redflag/Article/index_html

Related:

8 Signs Of A Doomed Stock

A quick look at Nam Fatt - PN17 (1.5.2010)

Red Flags and Pitfalls for Avoiding Financial Fakery

A quick look at Nam Fatt - PN17 (1.5.2010)

Nam Fatt Corporation Berhad Company

Business Description:
Nam Fatt Corporation Berhad. The Group's principal activities are constructing bridges, heavy concrete foundations, roads, factory complexes and other similar construction activities. Other activities include building, maintaining and operating the Jiangjin Bridge on a built-operate-transfer basis, constructing projects in the oil, gas and petrochemical related industry, steel fabrication, structural steel engineering, manufacturing and trading steel doors and industrial boilers, researching, developing, producing, selling, installing and maintaining metal roofing and wall cladding, manufacturing galvanised iron roofing sheets, property development; owning and developing golf resort and its recreational amenities, property developer and property manager, resort and development, managing a golf resort and recreational clubs and investment holding. The Group operates in Malaysia, Africa and Asia.

Currency: Malaysian Ringgits
Market Cap: 28,763,370
Fiscal Yr Ends: December
Shares Outstanding: 319,593,000
Share Type: Ordinary
Closely Held Shares: 35,229,890 (11%)

16/03/2010
NAMFATT - New admission into PN17

Wright Quality Rating: LCNN Rating Explanations








A quick look at Nam Fatt - PN 17 (1.5.2010)
http://spreadsheets.google.com/pub?key=tAskkNgs3uU8eyk_WrTFcSw&output=html

Some RED FLAGS (hindsight) in the accounts of Nam Fatt at end of 2008 to note are:

Share price 
RM 0.19  or market capitalisation of 34.16 m. (The price rose to RM 0.30 from March 2009 and dropped precipitously to RM 0.09 when the news of the company's financial problem was known.)

Income statement
Negative earnings -14.09 m
Interest expense -18.73 m

Cash flow statement
Negative CFO  -41.27 m
Neglible CFI
Negative FCF  -44.10 m
CFF  -34.11 m (Borrowings increased significantly)

Balance sheet
Total Debt 499.69 m
Account Payables' Days 206.58 days  (This then increased to 714.24 days in end of 2009)
Interest cover 0.66
Total Debt/Equity 0.82
Net Debt to EBITDA 26.64  (Ideally, this should be less than 5.  Bankers do not lend if this ratio exceed this figure.)

Of interest, these commonly used parameters DID NOT raise any red flags at end of 2008:

Equity 607.44 m (What is the actual value?!)
NAV 1.59
Current ratio 1.54
Quick ratio 1.51
Account Payables' Days 82.22 days (Though this subsequently ballooned to 307.08 days in end of 2009)
LTD/Equity 0.34
Dividend 2.08 m


Related article:

Measure long-term solvency and stability

Assessing indebtedness. How much debt is too much?

Acceptable debt

Debt and Leverage: Financial weapon of mass destruction

Be fearful of excessive leverage and debt

Buying Stocks on the Verge of Bankruptcy

8 Signs Of A Doomed Stock

Red Flags and Pitfalls for Avoiding Financial Fakery

Asset valuation approach in liquidation

Liquidation value is the net realizable amount that could be generated by selling a company’s assets and discharging all its liabilities.

When valuing a business for liquidation, most assets are marked down and the liabilities treated at face value. 

• Cash and securities are taken at face value.
• Receivables require a small discount (perhaps 15 percent to 25 percent off).
• Inventory a larger discount (perhaps 50 percent to 75 percent off).
• Fixed assets at least as much as inventory.
• Any goodwill should probably be ignored.
• Most intangible assets and prepaid expenses should beignored.

The residual is the shareholders’ take.

This valuation method is useful for companies being dissolved.

8 Signs Of A Doomed Stock

Are Your Stocks Doomed?
Few people seem to spot the early signs of a company in distress. Remember WorldCom and Enron? Not so long ago, these companies were worth hundreds of billions of dollars. Today, they no longer exist. Their collapses came as a surprise to most of the world, including their investors. Even large shareholders, many of them with an inside track, were caught off guard. So is there any way to know that your stock may be on a crash course to nowhere? The answer is yes. Read on to find out how.

1. Negative Cash Flows
Cash flow is a company's lifeline; investors who keep an eye on it can protect themselves from ending up with a worthless share certificate. When a company's cash payments exceed its cash receipts, the company's cash flow is negative. If this occurs over a sustained period, it's a sign that the company's cash in the bank may be getting dangerously low. Without fresh injections of capital from shareholders or lenders, a company in this situation can quickly find itself insolvent.

2. High Debt-Equity Ratio
Interest repayments place pressure on cash flow, and this pressure is likely to be exacerbated for distressed companies. Because they have a higher risk of default, struggling companies must pay a higher interest rate to borrow money. As a result, debt tends to shrink their returns. The total debt-to-equity (D/E) ratio is a useful measure of bankruptcy risk. It compares a company's combined long- and short-term debt to shareholders' equity or book value. Companies with D/E ratios of 0.5 and above deserve a closer look.

3. Interest Coverage Ratio
The debt/equity (D/E) ratio doesn't always say much on its own. It should be accompanied by an examination of the debt interest coverage ratio. For example, suppose that a company has a D/E ratio of 0.75, which signals a low bankruptcy risk, but that it also has an interest coverage ratio of 0.5. An interest coverage ratio below 1 means that the company is not able to meet all of its debt obligations with the period's earnings before interest and tax (operating income). It's also a sign that a company is having difficulty meeting its debt obligations.

4. Share Price Decline
Savvy investor should also watch out for unusual share price declines. Almost all corporate collapses are preceded by a sustained share price decline. Enron's share price started falling 16 months before it went bust. That said, while a big share price decline might signal trouble ahead, it may also signal a valuable opportunity to buy an out-of-favor business with solid fundamentals. Before deciding whether the stock is a buy or sell, be sure to examine the additional factors we discuss next.

5. Profit Warnings
Investors should take profit warnings very, very seriously. While market reaction to a profit warning may appear swift and brutal, there is growing academic evidence to suggest that the market systematically underreacts to bad news. As a result, a profit warning is often followed by a gradual share price decline.

6. Insider Trading
Companies are required to report, by way of company announcement, purchases and sales of shares by substantial shareholders and company directors (also known as insiders). Executives and directors have the most up-to-date information on their company's prospects, so heavy selling by one or both groups can be a sign of trouble ahead. Admittedly, insiders don't always sell simply because they think their shares are about to sink in value, but insider selling should give investors pause.


7. Resignations
The sudden departure of key executives (or directors), and/or auditors can also signal bad news. While these resignations may be completely innocent, they demand closer inspection. Auditor replacement can also mean a deteriorating relationship between the auditor and the client company, and perhaps more fundamental difficulties within the client company's business. Warning bells should ring the loudest when the individual concerned has a reputation as a successful manager or a strong, independent director.

8. SEC Investigations
Formal investigations by the Securities and Exchange Commission (SEC) normally precede corporate collapses. That's not surprising; many companies guilty of breaking SEC and accounting rules do so because they are facing financial difficulties. While many SEC investigations turn out to be unfounded, they still give investors good reason to pay closer attention to the financial situations of companies that are targeted by the SEC.

http://www.investopedia.com/slide-show/signs-doomed-stock/default.aspx

How to detect some early financial warnings in companies

Wednesday October 21, 2009
How to detect some early financial warnings in companies
Personal Investing - By Ooi Kok Hwa


Or how to smell a rat


TRADING volume on the stock market has recently been getting higher again. Some retail investors, who were absent from the recent rally, have started to get excited.

Over the past few months, investors were mainly focusing on good quality stocks, selling at a cheap level. However, attention has started to switch to poor quality stocks lately. Even though sometimes investors may be able to make money by betting on those stocks, we still need to be careful about the fundamentals of the companies. In this article, we will look at how to detect some early financial warnings.

A lot of companies like to make corporate announcements during the bull market. We agree that some of the announcements were genuine, but many corporate proposals were simply too good to be true.

If we analyse further, we will notice that the proposals might be way beyond the capabilities of the companies. Sometimes, the management’s projections of sales and profits were far beyond the past history. The capital expenditure requirements were well above the companies’ borrowing capacities.

Besides, the time required to turn the projects into profits might be too long. Nevertheless, as a result of the announcements, the stock prices would surge and normally, the main sellers behind might be the key owners.

We have also seen some proposals that turned out to be profitable. The companies did make profits in the first few years. However, the high growth in expansion stretched the capabilities of the top management, who might not have the experience and ability to run big businesses. They might have the experience to manage RM100mil turnover businesses. However, when the turnover surged beyond RM1bil per year, they might have problems. In fact, the main concerns to the companies were the top management team which lacked skills and experience to run big businesses.

We need to be careful if there are any changes to the key managers of the companies, auditors or accounting firms. The key managers are referred to the positions like chief executive officers and financial controllers. Besides, frequent changes in auditors provide serious financial warnings, especially the change from a reputable audit firm to an unknown one.


How to smell a rat or how to detect some early financial warnings in companies

Companies will soon start to report their financial results for the period ended Sept 30. In Malaysia, often good companies will try to announce their results before the deadline of Nov 30. However, if they are having difficulties in providing their financial statements, normally, we will expect some bad news to be announced. One of the possible explanations behind the delay is that the companies need more time to rectify certain financial problems.

Another potential sign of financial warning is when the companies venture into unrelated businesses. Previously, we saw many Bursa Malaysia second board companies going into financial distress in 1997/98 when they departed from their core businesses in manufacturing and ventured into property development activities.

We need to understand that when the company owners enter into areas that are not their core competencies, they might not be able to apply the knowledge and experiences accumulated previously. Instead, they would have to go through the entire learning curve again, which would result in the management taking a lot of time in managing those unrelated businesses.

In such situations, investors will need to pay attention and analyse whether those new ventures will be able to add value to the shareholders’ wealth. Some companies like to change their names after venturing into new businesses. Too frequent name changes may also imply that the companies have been shifting their core business focus and directions, which may not be good news to the shareholders.

Litigation is also another warning sign. We need to pay attention to companies that are involved in litigations, which may be either attributed to the companies being sued or they are suing someone else. These litigations may divert the management’s attention from day-to-day business operations. As a result, they may affect the companies’ performance as well.

One of the common questions asked by shareholders during any AGM is the directors’ fees. We need to analyse whether the fees paid are in proportion to the companies’ profitability. Sometimes, certain companies make excessive perks for owners as well as their employees or the lifestyle of the key owners is simply not consistent with the companies’ profitability.

The above are a few of the more common financial warnings that potential or existing shareholders must pay attention to when analysing the companies for investment. More importantly, we need to remain vigilant at all times and pay attention to the latest development of the companies.

● Ooi Kok Hwa is an investment adviser and managing partner of MRR Consulting.

http://biz.thestar.com.my/news/story.asp?file=/2009/10/21/business/4940519&sec=business

Footnotes: Early Warning Signs For Investors

Footnotes: Early Warning Signs For Investors

by Rick Wayman

Understanding accounting disclosures gives investors the ability to recognize early warning signs that can help prevent investment disasters. Companies are required to disclose the impact of adopting new accounting rules. This information sometimes reveals some bad news that may hurt stock prices. The adverse reaction could come from the revelation of off-balance-sheet entities, reduced earnings per share (EPS) or increased debt load. Reading between the lines of these disclosures will give the diligent investor an advantage. This overview provides a quick way to evaluate the investment risk that arises from adopting new accounting rules. (For related reading, see An Investor's Checklist To Financial Footnotes.)

Finding the Disclosures
Companies are required to disclose the potential impact of adopting new accounting regulations. Unfortunately, the disclosures are filled with legal boilerplate that may be difficult to read.

Accounting policy disclosures have their own financial notes and/or are discussed in another note. Some companies also repeat the disclosures in the management discussion and analysis (MD&A) section of their 10-K, 10-Q filings and annual company reports. The disclosure may be addressed in several areas, but the main one is usually one of the notes to financial statements with a title like "Summary of Significant Accounting Policies." In 10-Qs and company quarterly reports, the discussion of new accounting rules will most likely be limited to a note entitled "Recently Adopted Accounting Policies." Generally, each new rule is discussed in its own paragraph.

A quick way to read these disclosures is to focus on the second and last sentence. The second sentence will talk about what the rule does and the last sentence discloses management's expectation of what impact the new rule will have. The first sentence generally gives the name of the rule and indicates when the company has or will adopt it. It is best to read the entire disclosure to fully understand the potential ramifications, but focusing on both the second and the last sentence provides the most important information.

Determining What the Disclosures Reveal
Investors should focus on the last sentence where management discusses the new accounting techniques that may impact the company. There are three phrases investors should pay attention to that will raise green, yellow or red flags.



The Green Flag
"No material impact" according to management's assessment indicates the change will have no impact on financial reporting. An example of this is in Huffy Corp.'s, 10-Q for June 2003. Note 11 discussed recently adopted accounting standards. The first item is Statement of Financial Accounting Standards (SFAS) 143, which is accounting for asset retirement obligations. The last sentence reads, "The cumulative effect of implementing SFAS 143 has had an immaterial effect on the company's financial statements taken as a whole." (To view delisted stocks financial statements, visit the U.S. Securities and Exchange Commission)

The Yellow Flag
Phrases may vary, but pay attention if the last sentence tells you that rule will have an impact. You need to be extra careful of elusive language, which management may use because it is reluctant to disclose bad news. Look out for statements like: "The adoption of SFAS 142 did not have an impact on the company's results of operations or its financial position in 2002." Note that this statement does not address how the new rule may impact future results.

The Red Flag
The absence of any conclusive statement indicating the impact of the accounting changes is a big red flag. If the disclosure is missing in this statement, it could mean that management either has not determined the effect of the new accounting or has chosen not to break any bad news to investors. If a definitive impact statement is missing, investors will need to read the entire disclosure in order to evaluate the investment risk.

Take a look at General Electric's (NYSE:GE) 2002 financial statements. In the "Accounting Changes" section of the financial notes, GE states:

"In November 2002, the Financial Accounting Standards Board (FASB) issued Interpretation No. (FIN) 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. The resulting disclosure provisions are effective for year-end 2002 and such disclosures are provided in notes 29 and 30. Recognition and measurement provisions of FIN 45 become effective for guarantees issued or modified on or after January 1, 2003.

In January 2003, the FASB issued FIN 46, Consolidation of Variable Interest Entities and an Interpretation of Accounting Research Bulletin No. 51. FIN 46's disclosure requirements are effective for year-end 2002 and such disclosures are provided in note 29. We plan to adopt FIN 46's accounting provisions on July 1, 2003."

The disclosure only indicates that these changes will become effective in the future and does not provide any information on the impact of the change. Investors need to determine what this impact may be. In this case, GE had significant amounts of off-balance-sheet liabilities that would increase the debt load on its balance sheet. Investors need to evaluate how the market might react when the debt is consolidated. In GE's case, there might be little reaction due to the stature of the company and its management. In other situations, such news may be unexpected to those who did not bother to read between the lines.

The Bottom Line
Changes in generally accepted accounting principles (GAAP) are meant to correct accounting rules that can result in financial disasters for investors. Companies must disclose when the rules will be adopted and what impact they will have. Reading between the lines of disclosures made in Securities and Exchange Commission filings and corporate reports may give investors an early warning system to spot potential issues such as increased debt load from consolidating off-balance-sheet entities. Unambiguous impact statements are signs of a credible and competent management team. Lack of a clear impact statement or no statement at all is a warning sign. (For more insight, see Footnotes: Start Reading The Fine Print.)


by Rick Wayman, (Contact Author Biography)

http://investopedia.com/articles/analyst/03/101503.asp

Those that went with Madoff chose faith over evidence

Who isn't a Madoff victim? The list is telling.
Although many smart people seem to have been taken in, one expert argues that anyone who really did their homework would have seen the warning signs.
By Nicholas Varchaver
Last Updated: December 17, 2008: 10:14 AM ET

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NEW YORK (Fortune) -- As the number of victims of Bernard Madoff, the criminally charged founder of the investment firm that bears his name, seems to multiply with the speed and force of a hurricane, certain types of investors seem to be absent -- so far, anyway -- from the casualty list.
That's no accident, argues James Hedges IV of LJH Global Investments, a boutique firm that invests in hedge funds and private equity for high-net-worth families. In other words, score one for the big institutions that stick to standard rules rather than allowing their managers to invest on personal connections or hunches.
"There's no Duke Endowment [among the list of Madoff investors]," Hedges says. "There's no Harvard management, there's no Yale, there's no Penn, there's no Weyerhauser, no State of Texas or Virginia Retirement system."
The reason is simple, in Hedges' view. Letting Madoff manage your money "wouldn't pass an institutional-quality due diligence process," he says. "Because when you get to page two of your 30-page due diligence questionnaire, you've already tripped eight alarms and said 'I'm out of here.' "
In short, in Hedges' opinion, any sophisticated entity that actually did its homework would have seen the warning signs.
Hedges got the chance to see those signs up close: In 1997, when he was advising the Bessemer Trust, the giant wealth manager, he visited Bernard Madoff to discuss investing with Madoff's firm.
"I found him stylistically like a lot of traders: fast-talking, distractable, not remarkable," Hedges says of Madoff. But during their two-hour meeting, Hedges says, "there was one red flag after another."
For starters, he couldn't grasp Madoff's investing strategy. "I kept saying, 'you've got to explain it to me like I'm in first grade,' " he says. To no avail.
Then there was the fact that Madoff was charging no fees other than trading commissions: "The notion that something is fee-less -- which is what they largely proferred -- is too good to be true."
The fact that Madoff's operation was audited by a microscopic accounting firm also worried him. "He was also so secretive about his asset base -- that was another red flag."
In the end, Hedges was uncomfortable and Bessemer decided not to let Madoff manage any of its money.
In Hedges' view, those that went with Madoff chose faith over evidence. "You've got people who

• were disintermediated [i.e., didn't have a professional representative], or
• unsophisticated, or
• went in through a personal relationship.

That's what a con man is -- a confidence man is somebody that engenders a relationship and then subsequently lures somebody into doing something that they shouldn't do." (According to the federal criminal complaint against him, Madoff has confessed that he ran a "giant Ponzi scheme." His lawyer, Ira Sorkin, declined to comment.)
Certainly many of the institutions that turned to Madoff will challenge Hedges' views, as many will face litigation from their own clients. So far, two of the large fund-of-funds with the largest sums under Madoff's control, Tremont and Fairfield Greenwich, have already asserted that they conducted extensive due diligence before investing. Many others will take the same position.
Should Hedges' opinion be borne out and corporate and state pension funds remain absent from the roster of Madoff victims -- of course, there will be many more names added to the list -- it will only heighten the Madoff tragedy. Because, in the end, it would show that this was one investing disaster that could easily have been avoided.
First Published: December 16, 2008: 5:51 PM ET

Red Flags and Pitfalls for Avoiding Financial Fakery

Aggressive accounting: There are literally dozens of techniques that are perfectly legal and aboveboard, but which have the efect of fooling an observer into thinking that a firm has posted true operational improvements when all it has really done is moved some numbers around. You need to know how to identify what’s known as aggressive accounting so you can avoid the companies that practice it.

Outright fraud: Even worse than aggressive accounting is outright fraud. The hucksters of the world are naturally attracted to the stock market because it is the perfect arena for profiting from the greed and carelessness of others. Knowing the signs of potential fraud can save you a lot of financial pain.

It is not hard either. Although you might need a CPA to understand exactly how an aggressive or fraudulent firm is exaggerating its results, you don’t need to be an expert to recognize the warning signs of accounting chicanery.


SIX (6) Red Flags

Watching for these 6 warning signs will help you avoid maybe two-thirds (2/3) of potential accounting-related blowups.

1. Declining Cash Flow
Watch cash flow. Over time, increases in a company's cash flow from operations should roughly track increases in net income.

2. Serial Chargers
Be wary of firms that take frequent one-time charges and write-downs. Frequent charges are open invitation to accounting hanky-panky because firms can bury bad decisions in a single restructuring charge.

3. Serial Acquirers
Firms that make numerous acquisitions can be problematic - their financials have been restated and rejiggered so many times that it's tough to know which end is up. Acquisitions increase the risk that the firm will report a nasty surprise some time in the future.

4. The Chief Financial Officer or Auditor Leave the Company
Who watches the watchmen? When it comes to financial reporting, those watchmen are the chief financial officer (CFO) and the corporate auditors. If you see a CFO leaves a company that's already under suspicion for accounting issues, you should think very hard about whether there might be more going on than meets the eyes. If a company changes auditors frequently or fires its auditors after some potentially damaging accounting issue has come to light, watch out.

5. The Bills Aren’t Being Paid
You should track how fast the A/R are increasing relative to sales - the two should roughly track each other. A/R measures goods that are sold, but not yet paid for. It is simply not possible for A/R to increase faster than sales for a long time - the company is paying out more money (as finished goods) than it is taking in (through cash payments). On the credit front, watch the "allowance for doubtful accounts."

6. Changes in Credit Terms and Accounts Receivable.
Check the company's filing for any mentions of changes in credit terms for customers, as well as for any explanation by management as to why A/R has jumped.



SEVEN (7) Other Pitfalls to Watch Out for.

Watch out also for the following ways that firms can embellish their financial results.

1. Gains from Investments
An honest company breaks out these sales, and reports them below the “operating income” line on its income statement. The most blatant means of using investment income to boost results is to include it as part of revenue.

2. Pension Pitfalls
Pensions can be a big burden for companies with many retirees because if the assets in the pension plan don't increase quickly enough the firm has to divert profits to prop up the pension.

3. Pension Padding
To find out how much profits decreased because of pension costs or increased because of pension gains, go to the line in the pension footnote labeled either “net pension/postretirement expense,” “net pension credit/loss,” “net periodic pension cost,” or some variation.

4. Vanishing Cash Flow
If you are analyzing a company with great cash flow that also has a high flying stock, check to see how much of that cash flow growth is coming from options-related tax benefits.

5. Overstuffed Warehouses
When inventories rise faster than sales, there’s likely to be touble on the horizon.

6. Change is Bad
Firms can make themselves look better by changing any one of a number of assumptions in their financial statements.

7. To expense or Not to Expense
Companies can fiddle with their costs by capitalizing them.



Investor’s Checklist: Avoiding Financial Fakery

1. 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 is a good chance of trouble lurking.
   
2. 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.
   
3. Watch the trend of accounts receivable relative to sales. If accounts receivable is growing much faster than sales, the company may be having trouble collecting cash from its customers.
   
4. Pension income and gains from investments can boost reported net income, but don’t confuse them with solid results from the company’s core operations.