© D.L. Crumbley
Beware Overstuffed Warehouse – When inventories begin rising faster than sales, trouble is likely on the horizon. Sometimes the buildup is just temporary as a company prepares for a new product launch, but that’s usually more the exception than the rule.
Keep an Eye on Accounts Receivable – Roughly speaking, watch A/R as a percentage of sales, and watch the growth rate in A/R relative to the growth rate of sales. If A/R is moving up much faster than sales, something may be amiss.
Source: Pat Dorsey, “Five Tips for Spotting Financial Fakery,” Yahoo! Finance, February 11, 2004.