Learning Value Investing: Eight Signs That a Company’s in Trouble

Friday, July 18, 2014

· Lower Liquidity

Liquidity is the ability of a company to quickly convert assets to cash so that it can pay its bills and meet other debt obligations

· Low Cash Flow

If you don’t have cash, you can’t pay your bills. The same is true for

companies.You need to know how well a company manages its cash

· Decreasing Profit Margins

Everyone wants to know how much money a company makes in

other words, its profits. A company’s profit dropping year to year is

another clear sign of trouble.

· Revenue Game-Playing

Problems can include managing earnings so results look better than

they really are and actually creating a fictional story about earnings

Problems can include managing earnings so results look better than

They really are and actually creating a fictional story about earnings

· Too Much Debt

Borrowing too much money to continue operations or to finance new

activities can be a major red flag that indicates future problems for a

company,

· Unrealistic Values for Assets and Liabilities

Some firms can make themselves look financially healthier by either

overvaluing their assets or undervaluing their liabilities. Overvalued

assets can make a company appear as if its holdings are worth more

than they are.

· Slow Inventory Turnover

One way to see whether a company is slowing down is to look at its

Inventory turnover (how quickly the inventory the company holds is

sold). As a product’s life span nears its end, moving that product off

the shelf tends to be harder and harder.

· Slow-Paying Customers

Companies report their sales when the initial transaction occurs, even

if the customer hasn’t yet paid cash for the product

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Learning Value Investing