Shenanigan Checklist

Income Statement Checks

CUM PAT VS CUM CFO of last 10 years and CFO/Ebitda > 0.7
What this does is, it tells us whether Acrrual Profits are
being converted into real profits or not
Volatility in Depreciation Rate as a percentage of sales
Company chaging depreciation assets life constantly?
Cash Yield
Company earning more than Risk free rate or not on the
cash>5%
Increasing Receivables>Increasing sales
Incremental sales of poor quality
Miscellaneous Expenses
If high, then doubt if expenses are real?
Sales being done to subsidiary
Eg Kitex and Bharat RASAYAN Related Party
Transactions
Always check for segmental break up of revenue
Company paying dividend in slow down or not
Check for contingent liabilites
Off the balance sheet items, which can wipe off equity if too
high, shouldn't be more than 5%
Check for goodwill/intangibles as a % of networth
eg- What happened with 8k miles and Tanla solutions. If
greater than 10%, Avoid unless know goodwill acccounting.
Check for provisions in trade receivables
Eg- Kwality Dairy, Parag Milk foods, if provisions are more
than 5-10% of trade receivables, Avoid
Check for Auditors CARO REPORT (Annexure A OR B)
Very high CFI without purchase of fixed assets
Check if Cash is being accumulated on balance sheet and
where it is being used
Lack of FCFE generation
Check if Free cash flow is lumpy, if lumpy then what is the
reason?
CFF very high and excessive share issues
If dilutions are frequent, Avoid
Past claims of the management and track with current
performance
try to match target from Annual Report of 3-4 years back to
sales and profit growth till now
Google Fraud checks
type in managements name with "legal","SEBI" OR
"Fraud", Moneylife
Glassdoor and linkedin checks
Stock Pledge if any by promoter in past