Tags :balance sheet red flags

Financial statement analysis is the backbone of commercial lending decisions. Yet, 42% of loan defaults stem from overlooked red flags in financial reports. This guide reveals Wall Street-tested techniques to dissect balance sheets, income statements, and cash flows—spotting manipulation while assessing true repayment capacity. 1. The Big Three Financial Statements & Common Manipulation Tactics A. The Balance Sheet: A Snapshot of Financial Health Red Flags:✅ Inflated Assets: Fake receivables, overstated inventory (e.g., Theranos’ $1B “phantom revenue”)✅ Hidden Liabilities: Off-balance-sheet leases, undisclosed guarantees (e.g., Enron’s special-purpose entities) B. The Income Statement: Profit or Illusion? Fraud Tactics:🚩 Channel Stuffing: Booking future sales early (e.g., Sunbeam’s 60Mfakerevenue∗∗)🚩∗∗ExpenseCapitalization:∗∗Misclassifyingcostsasassets(e.g.,∗∗WorldCom’s60Mfakerevenue∗∗)🚩∗∗ExpenseCapitalization:∗∗Misclassifyingcostsasassets(e.g.,∗∗WorldCom’s3.8B fraud) C. The Cash Flow Statement: Follow the Money Case Study:A Midwest manufacturer reported 5Mnetprofit∗∗buthad∗∗−5Mnetprofit∗∗buthad∗∗−2.1M operating cash flow. Digging deeper, receivables had surged 90 days past due—a classic “sales on credit” bubble. 2....

Like(0)SinoLoanExpert2025-03-28Banking Advisors balance sheet red flagsbusiness loan underwritingCash Flow Analysiscommercial lending riskscredit risk assessmentDetecting Financial FraudFinancial Statement Analysisincome statement manipulationloan default preventionSBA loan requirementsViews()