Saturday, August 20, 2011

High Growth Companies under SEBI scanner

Satyam was an eye opener case where the reported financial numbers were inflated to keep share prices artificially high. There is high degree of chance that there are still many companies in listed space which is following this modus of operandi to keep their share prices high. 

Is there any way for an individual investor to spot such incidents?, possibly yes. A relatively easy way is to compare the growth of the company in suspicion with the growth of the market leader of the industry and the industry in average in which the company operates. If there is huge divergence without strong fundamental reasons then there is a possibility of company's book getting cooked.

Capital market regulator SEBI routinely investigates companies that report suspiciously high growth in turnover and profits to detect possible frauds.
This system, he added, is based on certain risk parameters like abnormal change in profitability compared to earlier years, to help detect fraud at an early stage.
"SEBI also carries out investigations on the basis of inputs received from various sources, including information on companies which show suspiciously high growth in turnover and profits," Meena said.

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