Too good to be true: Financial statements of the company appear too good to be true when compared with the performance of its competitors and economic conditions. The management could be under pressure to paint a rosy financial picture to prevent a corporate takeover or for personal benefits.

Unexpected exits: Key company officials have suddenly resigned or departed without sufficient reasons. Sudden selling of bulk stock by promoters is equally disconcerting. These could be signs that the management expects the performance to deteriorate and doesn’t intend to take responsibility for it. 

Red flags: Allegations or red flags received via the whistle-blower hotline and other modes of communication are repeatedly ignored. This suggests that the senior management may not be serious about addressing potential fraud in the company and may be complicit in it.

Internal affairs: The company’s internal control framework is weak, which includes a lack of segregation of duties, and the absence of a code of conduct, whistle-blowing mechanism and internal audit function, or the company is not audited by reputed external auditors.

Overblown targets: The company has overly aggressive targets for sales and earnings per share, and has expansion plans that are not in line with its performance and the industry. Apart from looking at its past record, the company’s projections also need to be analysed — unachievable targets could be a sign that it might be trying to manipulate its share price, or it is trying to attract investors.