Sort Red Flags by Where They First Appear

Sort each red flag by the statement or note area where the first verification should happen. Income statement Balance sheet Cash flow statement Notes and disclosures Gross margin falls despite management claiming stable pricing SG&A as a percent of revenue drops sharply without explanation Revenue grows while gross margin deteriorates and incentives rise Receivables grow much faster than sales Inventory rises after a demand miss Contract assets double while billings lag Net income rises while operating cash flow falls Working capital absorbs most operating cash Revenue recognition policy wording changes from prior year Large related-party sales appear in the notes

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