To close out this holiday weekend and in consideration of all the tumult the market has been going through of late, this week's AAII Investor Update seemed particularly timely. Hope everyone had a wonderful 4th today!
Four Ways to Identify Companies at Risk of Going Bankrupt
 |
Investor Update |
Dear Member, |
Special note: You can get access to every premium newsletter (future ones, too!) and A+ Investor for at least $300 off. AAII Platinum leverages seven model portfolios, their daily-updated watchlists, an exclusive dashboard, our trove of special reports and detailed analysis exploring different investing niches to help you build, handle and thrive in any market condition. Click here to learn more about AAII Platinum. |
The worst possible outcome for a stock is bankruptcy. When a company files for bankruptcy, its shares are first delisted and then are eventually eliminated. This fact was obviously lost on speculators who bid up shares of Revlon Inc. (REV) from $1.95 to as high as $9.89 after the company filed for Chapter 11 bankruptcy two weeks ago. Revlon's bankruptcy provides the opportunity to talk about warning signs to watch out for. A few key ratios and indicators can quickly tell you if a company is at risk of not being able to handle its debt. (Well there was a wonderful graphic here when I first copied it over but it has now disappeared. It explained in a few simple lines the factors that are red flags for when a company is approaching bankruptcy. You'll have to click on the link below to see it and read the rest of the article.) |
An obvious metric is the level of total liabilities relative to total assets. It's easy to judge with a quick glance at the balance sheet. Revlon ended its first quarter with a total-liabilities-to-total-assets ratio of 187.5%. To put this number in perspective, Revlon's proportionate debt level ranked in the highest 3% of all publicly traded companies. Yikes! |
No comments:
Post a Comment