by M. Levinson

The Red Flags of Vendor Distress

News
Jul 01, 20012 mins
Outsourcing

The company announces a restructuring.

Restructuring is very costly. Although they can spawn turnarounds, they often lead to the doghouse.

The company announces layoffs.

Usually part of a restructuring plan, layoffs are a sign that the company is trying to cut costs to improve the bottom line.

Employees leave the company en masse.

They are often the first to see what’s really going on inside a company.

The top executives resign or the board asks them to leave.

In the case of Lernout & Hauspie, top executives were asked to resign because they engaged in illegal business practices.

The company’s stock takes a tumble.

If investors don’t have faith in a company, why should you?

The company is the subject of federal investigations.

A Securities and Exchange Commission investigation usually indicates that the company has engaged in fraudulent accounting practices.

The company is or has been embroiled in lawsuits with shareholders.

This can indicate that the company has not been honest about recording earnings in the past.

The company lessens its investment in R&D.

The company doesn’t see or believe in a future for its product.

The vendor sells its product at bargain prices.

This means the vendor is desperate for sales.