Following every bankruptcy, a company's 澳洲幸运5开奖号码历史查询:investors, suppliers, customers, and employees invariably ask themselves: "Could we have seen it coming? Could we have predicted that the company was in big trouble? Were there distress♌ signs that we missed?"

The answer is often yes. Many early warning signs indicate that a company is experiencing problems. Being aware of these signals can help prevent losses. If a company is in trouble, the odds are that you'll see red flags in its 澳洲幸运5开奖号码历史查询:financial statements. At the same time, 💙watch out for changes in its management activities and operations.

Financial Statement Warning Signs

You can learn a lot about a company's financial health from its 澳洲幸运5开奖号码历史查询:financial statements. Look for trouble in the 澳洲幸运5开奖号码历史查询:cash flow statements. When cash payments exceed cash income, cash flow is negative. If cash flow stays negative over a sustained period, it's a signal that its cash could be running low and insufficient to cover its obligations. So keep an eye on changes in the company's cash position on its 澳洲幸运5开奖号码历史查询:balance sheet. Without new capital fro﷽m equity investors or lenders, a company can be in financial trouble.

Profitable companies may have negative cash flows and find themselves in distress. Long delays between the time when the company spends cash to grow its business and when it collects cash 澳洲幸运5开奖号码历史查询:receivables can severely stretch cash flow. 澳洲幸运5开奖号码历史查询:Working capital may also decline and become negative as 澳洲幸运5开奖号码历史查询:accounts payable grow at a faster rate than💧 inventory and accounts rece♛ivable. In any case, negative operating cash flows should be interpreted as a warning that the company could be headed for trouble.

Interest 澳洲幸运5开奖号码历史查询:repayments can put pressure on cash flow, and this pressure is likely to be exacerbated for distressed companies. Because they have a higher risk of 澳洲幸运5开奖号码历史查询:defaulting on their loans, struggling c🔯ompanies mಞust pay a higher interest rate to borrow money. As a result, debt tends to shrink returns.

The 澳洲幸运5开奖号码历史查询:debt-to-equity (D/E) ratio is a handy metric for gauging a company's debt default risk. It compares a company's long- and short-term debt to shareholders' equity or 澳洲幸运5开奖号码历史查询:book value. High-debt companies have higher 澳洲幸运5开奖号码历史查询:D/E ratios than companies with low debt.

Auditing Warning Signs

Don't forget to cast your eyes on the 澳洲幸运5开奖号码历史查询:third-party 澳洲幸运5开奖号码历史查询:auditor's report, usually published at the front of a company's quarterly and 澳洲幸运5开奖号码历史查询:annual reports. If the report makes a mention of discrepancies in the company's accounting practices—such as how it books revenue or accounts for costs, or questions the firm's ability to continue "as a going concern"—regard that as a red flag.

The notification of a change in auditors shouldn't be taken lightly. Auditors tend to jump ship at the first sign of corporate distress or impropriety. Auditor replacement can also mean a deteriorating relationship between the auditor and the client company or perhaps more fundamental difficulties, such as strong disagreement over the reliability of the company's accounting or the auditor's unwillingness to report a clean bill of health. There are more auditor resignations when 澳洲幸运5开奖号码历史查询:litigation risk increases and a company's financial health deteriorates—so watch out for them.

Business and Management Warning Signs

While financial statements can help gauge a company's health, don't ignore managerial and operational distress. Many private companies do not disclose financial statements to the public, so business information may be all that's available to assess their w♊ell-being.

Look out for market environment changes, such as an 澳洲幸运5开奖号码历史查询:economic downturn, the appearance of a strong competitor, and an unexpected shift in buyer's habits. These can trigger (if not cause) deterioratiꩵon in a company's financial health and pressure a company's revenue💫s and profitability. Be aware of the company's customers, competitors, market, and suppliers, and try to stay in front of any changing market trends.

Here are a few other thiꦉngs ಌto consider in your research:

• Strategy: Be wary of dramatic changes in strategy. When a company drifts away from its traditional 澳洲幸运5开奖号码历史查询:business model, the company might be in financial trouble. Consider a 100-year-old company positioned as the global leader of a certain widget shifting its central focus to produce a different, unrelated product. This shift could indicate a problem within the company.
• Pricing: When a company suddenly starts slashing prices, you should ask why. It may mean that the company is in a big rush to increase sales volume and get more cash into the business, regardless of the potentially detrimental impact of such a move's long-term impact on profits or its brand. A desperate grab for cash—also witnessed when companies suddenly start selling off core 澳洲幸运5开奖号码历史查询:business assets—could be a sign that suppliers or lenders are banging at the door.
• Quality: Another sign of distress is product and service quality deterioration. Naturally, a company that is fending off bankruptcy will have an incentive to cut costs, and one of the first things to go is quality. Look for the sudden appearance of shoddy workmanship, slower delivery times, and failure to return calls.
• Management Flight: Lest we forget, the sudden departure of key executives or 澳洲幸运5开奖号码历史查询:board directors can also signal bad news. While these resignations may be completely innocent, they demand closer inspection. Warning bells should ring the loudest when the individual concerned has a reputation as a successful manager or a strong, independent director.

The Bottom Line

When a company is struggling, the warning signs are typically already there. Your best line of defens🌳e as an investor, supplier, customer, or employee is to be informed. Ask questions, do your research, and be alert to unusual activities.