First, inflated income.
Inflated income means that the company directly sells its products to others on credit, which increases its operating income. Therefore, if a company just wants to beautify its income statement, it can sell its own products through a large number of credit sales, thus increasing its operating income and net profit on financial reports.
Therefore, if we see through the financial statements that the accounts receivable of a company suddenly increase substantially, and far exceed the growth rate of total operating income in the same period, it may indicate that the company has temporarily relaxed its policy and increased its credit sales, so we must be vigilant.
However, it should be noted here that the substantial increase in accounts receivable may be due to the company's deliberate inflated income; It may also be the normal arrears caused by temporary lack of money in the hands of some downstream buyers. The sharp increase in accounts receivable cannot be killed with a stick, but should be analyzed in combination with the specific company situation.
Second, write off fraud.
Some companies feel that there are too many accounts receivable and financial reports are not good-looking. They are afraid of arousing the vigilance of investors, so they will consciously hide their accounts receivable. By means of writing off fraud, the money appeared in the statement with a new look.
Therefore, if a company with a large amount of accounts receivable suddenly has a large sum of money to solve the accounts receivable problem one day, then everyone needs to pay attention to whether the company has added other abnormal expenses, such as prepayments, which may be used to beautify the statements. After all, accounts receivable are money owed by others to the company, and investors will worry about whether it will become bad debts; The feeling of being an advance payment is not so negative, and no one will care too much about it.