Key Fundamentals: Sales, Margins, Return On Equity(5)

Watch For Pitfalls In Sales Figures

Sometimes sales numbers mask problems at companies.

Companies may rely on just a handful of customers, and losing any of them may mean big trouble.

Other companies are overly reliant on overseas markets, putting them at risk of bad economies or political strife abroad.

Also, fluctuations in foreign-exchange rates can seriously dilute sales figures.

Some companies, such as pharmaceuticals, get the bulk of their sales from a few flagship products.

If sales in these items falter, it could mean more trouble than if the overall sales drop.

With retailers, additions of new stores increase the sales figures, even if sales at existing stores slow down.

That's why retailers report total sales as well as same-store sales, to provide an apples-to-apples comparison.

Another pitfall happens when companies include sales that haven't actually taken place.

Orders that won't be shipped or paid until weeks or months later sometimes are added to the sales total to inflate results.