Friday, July 18, 2014

Eight Signs That a Company’s in Trouble

          
·     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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