China Gaoxian

[Musicwhiz]

Hindsight is a wonderful and miraculous thing. It opened up the eyes of the blind!

Haha, a lot of the reports written on suspended S-Chips are using hindsight to identify "red flags". This is where I think it's really hard to spot problems until it is too late.

Still. I do look out for certain "tell-tale" signs:-

1) Management exuberance at raising money even though they seem to have a decent cash balance.

2) Reluctance to pay out dividends even though they have a huge cash hoard, saying money is for "expansion".

3) Aggressively promoting the Company, with CEO going on road shows, engaging advisers for dual listing, appearing on TV etc. All stinks of them focusing more on the share price, rather than the business.

4) Industry characteristics - High gross and net margins sure do sound suspicious, especially for Gaoxian's case where I saw that the difference between gross and net margins was just about 9%!

5) Large fluctuations in AR/AP - This does raise red flags though taken by itself, it is not indication of any dishonesty.

Suffice to say that even with the above being ABSENT, a company could still be involved in fraud and dishonesty and be suspended. A good track record and reputation is thus very important (e.g. company has a long good history or been listed for some time without trouble).

Just my 2-cents.