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How to identify the stocks which are going to get dumped?

Posted By On 7/13/2009 09:37:00 PM Under

It is easy to find the stocks which are going to go bust and one can easily identify the stocks dooming by following the factors as listed below:
(a) Follow the cash flow of a company i.e. cash receipts should be greater than cash flow.
(b) The total debt-to-equity (D/E) ratio is a useful measure of bankruptcy risk. Companies with D/E ratios of 0.5 and above deserve a closer look.
(c) Keep track of executives and auditors resigning which means that something is going in the company which is not known to general public.
(d) Savvy investor should also watch out for unusual share price declines. Almost all corporate collapses are preceded by a sustained share price decline.
(e) Take profit warnings with a seriousness.
(f) Keep track of insider selling as it spells disaster.
(g) The debt/equity (D/E) ratio doesn't always say much on its own. It should be accompanied by an examination of the debt interest coverage ratio. For example, suppose that a company has a D/E ratio of 0.75, which signals a low bankruptcy risk, but that it also has an interest coverage ratio of 0.5. An interest coverage ratio below 1 means that the company is not able to meet all of its debt obligations with the period's earnings before interest and tax (operating income). It's also a sign that a company is having difficulty meeting its debt obligations.

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