7 Ways to Predict a Company's Financial Health

Sometimes when you are looking at a prospect - or heck, even your own company - you think to check the stock price for its health score. Good start.

However, there are other ways to figure out if the company is doing OK or if it is the Titanic.

Here are other ways to find out information on the health of a company - here are the top 7:

1. Revolving Accountants
Look for the anomalies - if cash flow is in the basement, but earnings are holding up....there is probably an issue. Taking dollars from the bottom line often equates to a serious issue. Also, have they changed accounting firms recently? Sure, sometimes justified - but often not (due to bad numbers).

2. Cuts Keep Coming
Growth and trim backs are natural in business - but what does the latest cut mean? Have they reduced benefits to the employees? Have the cuts in personnel been deeper than normal? Are they selling off parts of the company or other assets? Keep an eye on these - even moving offices (specifically to a cheaper area can be a signal).

3. Customers Clam Up
Are your customers (or prospects) not flooding the phone/email lines anymore? Are support renewals down? For license based business - are you hearing more about your customers moving to a SAAS based model?

4. IOU But Can't Pay You
Have you determined your prospect's debt rating? This evaluation from S&P shows how risky an investment in cash in the company is.....

How cash rich is the company?

5. Executives Dump Stock
Watch what folks do, not what they say. If the company is publicly traded, and they are an officer of the company - and they are dumping stock....not a good sign!

6. News You Don't Need
Watch for acquisition targets, SEC violations, etc. There are many company-related blogs that discuss what is happening behind the scenes (hey, leaks happen) and it doesn't hurt to pay attention to them. Based on the 80/20 rule, there is often a kernel of truth to whatever rumors are out there in cyberspace about a company.

7. Name Adorns a Stadium
Self-promotion is great, advertising is needed - but do you really need the prime Super Bowl spot or the company name on a stadium? With the economy the way it is, look closely if the company in question has its name to ego-based endeavors like a sports stadium. If they are spending it there, they may not be spending it on your technology a few months from now.

The KISS question is, "what do you know of your customer or prospect's financial holdings?"

This blog is derived from a WSJ report (bullet points provided from WSJ) from eons ago.