Spotting Troubled Companies

Interesting article, courtesy of CBC news...spotting troubled companies.

Some highlights of the article:

Danger signs include:

-Companies run by family and friends. Sugarman points out that when you have a CFO who is related to the CEO, that's not a good thing - same if the chairman is related to the CEO: "an investor should really start to wonder why, and wonder who is watching the henhouse."

-Companies that go on a buying binges, because if they're doing so great in core businesses, why make acquisitions in other areas?

-Look at Byzantine business structures. As Sugarman says, "if you can't figure out what the heck is going on, and why they need to set something up with such a concentrated fashion, you should assume that there is something that they're trying to hide."

-Listen to skeptics. This chapter features our infamous made-in-Canada mining scandal surrounding Bre-X, the company that in the early 1990s claimed it had discovered a huge gold find in Indonesia. However, the results were fabricated.

Here is the link to the book on Amazon.