The following is not meant to be legal advice.
Some items to listen for in earnings calls:
When listening to earnings releases of a technology company, there may be talk on the recognition of revenues. Some companies look at both revenues and backlog to compare numbers. Backlog is not recognized as revenues. This may create anomalies in the review of financial statements when comparing information from year to year.
Will the anomalies reverse in future years? The earnings call may boast high revenues and cash generation, but people should also listen when losses are discussed. High revenues do not always indicate a healthy company. Building a business that scales involves a focus on activities that are generic, not custom.
Look at the customers to see if they are the same customer from different business units. Look at reseller relationships to see if they are commitment based. If they are commitment based, the reseller still needs to pay the company even when there are no sales.
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