Earnings: Watch for These Red Flags

Here are some metrics that investors should look for when trying to assess the quality of companies' financials

Just how well—or badly—are companies doing amid the current downturn? Most outfits have gotten quite adept at making their quarterly financial numbers look as attractive as possible. One way to gauge the relative safety of stocks is to distinguish companies whose earnings are more likely to be sustainable over time from those whose profits may prove short-lived. With first-quarter earnings season beginning in earnest, BusinessWeek decided to take a look at some metrics that investors should watch carefully when trying to assess the quality of companies' financials.

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