Thread by @Fritz844

"How did you go bankrupt?
Gradually, then suddenly."

- Ernest Hemingway

Warning signs in the early "gradual" phase
• Shipments slow down
• Quality slips a bit
• Inventories build compared to sales
• Payables are extended
• Gross margins erode a bit
• Cash balances are falling

Warning signs in the late "gradual" phase
• Production problems
• Material shortages (mgmt tries to conserve cash)
• AR days go up
• Payables > 60 days
• Cash balances low
• Hard to meet payroll
• Credit facilities in technical default
• Employee morale is failing

Warning signs in the "sudden" phase
• Total chaos
• Behind schedule
• Quality problems
• Collections
• Cash balances negative (after overdraft)
• Employees leaving
• Customers impatient
• Secured lenders lose confidence in management

Quantitative indicators to track:
• Debt/equity
• Working capital ratios
• Receivables / payable days
• Financing long-term assets with short-term money
• Financing costs
• Inventory days
• Declining margins
• Declining profits
• Declining sales
• Falling ASP
• Z-score

Qualitative indicators to track:
• Production problems
• Late shipments
• Incorrect shipments
• Returns
• Unusual allowances
• Rework
• Customer dissatisfaction
• Deferred maintenance
• Low morale / employee turnover
• Accidents
• Management reactive
• Late reporting

Data sources:
• Recent financials
• Management interviews
• Glassdoor / Kanzhun
• Customer review websites: Yelp, Google Maps, Amazon, Trustpilot, etc
• Earnings call transcripts
• LinkedIn for resignation data
• Financial regulator correspondence
• Lawsuit filings