Companies that are either (i) window-dressing their balance sheets, (ii) have highly seasonal cash flows or (iii) are faking profits which are then hidden in cash-like assets, may appear highly free cash flow generative. Despite this, they will often need to raise external capital, seemingly in excess of requirements. The model is triggered when net cash inflows over a three-year period are in the highest quintile relative to global industry peers. Any company which triggers this model in conjunction with our Fake Cash Flow Fraud model should be regarded with suspicion (an 8% incidence rate). The next step is to conduct an in-depth peer group comparison to see if unusual traits can be explained by analysing a more relevant peer group.

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