The 3rd criteria is to recognize ‘EPS Manipulation’ in financial statement.Before buying a share, read the ‘Notes to the financial statement’. Get to know how the company define its sales, expenses, debt and others. Look for irregularities in the financial statements such as extraordinary write off, special expenditure and so on. This means you as an investor must question every ‘weird’ numbers in the financial statement. Each financial statement will go through an artist work (by the accountant) to hide any ugly sides of the company.
For example, a company can declare its sales before the products are sold to the end users. This means the company declares its revenue before it receives the cash or before the cerdit term expires. By doing the ‘art work’, the company can significantly increase revenue, reduce expenses and get a better EPS.