More Key Indicators...
<<While poor management and Weak products/services are good reasons to avoid a stock [perhaps short], they are usually rather difficult to judge - at least from afar and aren't intrinsically indicative of financial weakness. May help as background, if quality can be judged.>>
Bob: I actually think these are very good indicator, albeit somewhat difficult to objectively assess, given the intangible aspects of both issues. More companies fail due to internal reasons (e.g., poor management, weak products) than due to externals reasons (e.g., economic recession, falling commodity prices). That's why I think these indicators should be used in the screening stage.
<<Quick ratio standard is about 1, wouldn't it need to be a bit lower than that to signal difficulty like < .8 or .9?
May seem to be quibbling here but am looking for at-a-glance, objective indicators that say "TROUBLE" and not just indications of imperfection.>>
You're probably right, but I didn't want to be too restrictive at first. Anything with a quick ratio of less than 1.0 probably deserves further investigation, but a lower ratio is more appropriate if you're looking for real "TROUBLE".
<<Aren't floorless converts pretty tough to identify...almost to the point of you don't recognize them even when your reading the SEC or PR covering their issuance. Any quick and fairly sure recognition strategies would be appreciated.>>
No, not really. I've never had any problem identifying floorless convertibles when reading through SEC reports. (OTOH, I've rarely ever seen anything indicating a floorless convertible in a company press release.) The key word to watch for in the section describing the conversion process is the word "variable". John G can probably add to this discussion in greater detail.
<<Aging payables: This sounds good, but is it a timely, easy to find number?>>
Actually, this is a very easy number to calculate from any Q. The average days payable ratio is a turnover ratio that measures how quickly a company is paying its suppliers. The formula is listed below:
Average Days Payable
= [(Avg. Accounts Payable)/(COGS + Chg. in Inventory)] X 365
where the resulting units are in days.
<<How bout some sort of interest or fixed charge ratio?>>
"Times fixed charges" or "fixed-charge coverage" is a good indicator, especially for cyclical companies during times of recession. Obviously the lower this measure is, the more dangerous the company's financial predicament. For example, a ratio of 1.0 would mean that all of a company's EBIT must be allocated to pay fixed charges for interest on bonds and other long term debt.
Razor |
