WARNING SIGNS YOUR COMPANY IS A FRAUD!

about 6 years ago
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By Ruma Dubey

Starting today, 222 companies have got delisted from the BSE as trading in their shares has remained suspended for over six months.

The question which many who have lost out in such companies – why me, why did I not an early warning?

But then there were more than enough warnings – the very fact that trading was suspended and prior to that itself, when the companies were not declaring their earnings at the right time; there would have been so many instances of something not being right in the company.

Then the question being asked – how do I recognize this company? There are many ways – management, earnings, way of working and so many things. But if you want it ‘instantly’ like ordering food on Swiggy, we can pay attention to the various warnings which SEBI gives.

On Monday, the ministry of corporate affairs (MCA) identified 1,313 ‘listed’ companies that have not filed their annual results. Of these, 911 have been traced by the Securities and Exchange Board of India (Sebi), while the rest of the 402 are not traceable on the bourses – these are companies which got the nod from SEBI for an IPO but never went ahead and got itself listed.

Of the 911 listed companies, SEBI found that 335 have been delisted while 73 are vanishing companies. Around 80 were on the dissemination board of the BSE and NSE, while 405 continued to be listed. Another 18 firms are limited by guarantee or private limited companies.

So what are the warning signs we need to watch out for? A quick look at some of the obvious reasons:

1: Resignation of auditors just before declaration of earnings

2: Negative cash flows – cash payments exceeds cash rceipts

3: High debt equity ratio – interest payment putting pressure on earnings; Companies with D/E ratios of 0.5 and above deserve a closer look.

4: Interest coverage ratio – below 1 means the company is not able to meet all of its debt obligations.

5: Unusual share price decline – Enron’s share price started falling 16 months before it went bust.

6: Pay very very close attention to profit warnings

7: When promoters sell, investors need to pause and look where it is heading

8: Sudden departure of key executives or directors – these surely demand closer inspection.

9: Pay close attention to the financial situations of companies that are targeted by SEBI.

10: Companies start missing scheduled filing dates of financial statements.

11:  Companies restate their financial statements.

12: It is fishy when management gives bizarre answers or outright non sequiturs to analyst questions during quarterly earnings.

13: Promoters take out money for personal expenses

Risk is inherent in any investment but not paying attention to some of the above mentioned warning signs could mean you are blind, deaf and mute.

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