What are the quality-of-earnings red flags in the cash flow statement?

Standard red flags that DD teams check systematically:

• OCF grows slower than net income over several years — signals decaying earnings quality (e.g. an AR build-up to manipulate revenue).
• High working-capital volatility with no seasonality explanation — possible period-end balance-sheet optimization.
• Capex < maintenance-capex threshold (rule of thumb: < 80% of D&A at industrials) — short-term cash optimization at the expense of the asset base.
• A growing share of 'other operating activities' in OCF — a catch-all line, often opaque non-cash items.
• Aggressive capitalization of R&D or software costs — shifts expense from the income statement into capex, an artificial boost to EBITDA and OCF.
• Reverse factoring (supplier-financing programs) — can inflate AP artificially and inflate OCF without being immediately disclosed as debt.