The Signs Were There
The Clues for Investors that a Company is Heading For a Fall
By Tim Steer
Profile Books (£14.99)
Buy on Amazon
Investors generally spend most of their time looking for companies that are doing well – or at least better than expected. But spotting signs that a firm is in trouble is also a useful skill, especially if you own its shares. This book by former Artemis fund manager Tim Steer looks at the red flags that suggest not only that a firm is in trouble, but also that the management is trying to hide the fact with some creative accounting.
The book is divided into ten chapters, each of which is focused on a particular theme. Each theme is then illustrated with two or three case studies. For example, chapter seven uses the examples of Northern Rock and Cattles as two companies that were destroyed by a combination of bad debts and too much leverage. Similarly, the experiences of Guardian IT, Tribal Group and Conviviality illustrate the downsides to acquisitions. The book then concludes with a 20-page look at what can be done to ensure similar scandals are caught earlier or prevented altogether.
Much of that involves dipping into the balance sheets of companies, so if you don’t like the idea of engaging in detailed accounting you might be tempted to decide this isn’t the book for you. That would be a mistake, as there are a lot of useful hints and tips – such as the reminder that auditors are designed to be watchdogs, not bloodhounds – that could end up saving you a lot of money. Highly recommended.