If you’re a business investor, you probably don’t want to put money into an Ohio company that is in trouble. Understanding some of the obvious signs that a company is going through financial turmoil may help you to avoid making a costly mistake.
Here are three signs that a company is in serious trouble:
#1: No more dividends for shareholders
A financially healthy company will be able to send periodic dividends to its shareholders. When dividends are reduced or eliminated altogether, this sends a clear message to shareholders that something is wrong. Shareholders are likely to react by selling their stock, which could bring the value of the company down even more.
#2: Insiders are dumping stock
Pay attention if you find out that people with close ties to a company are dumping a lot of stock in that company. Although it’s not unusual for insiders to sell a little bit of stock from time to time, large stock dumps can be a sign that there are serious internal problems. Selling off stock in your own company doesn’t necessarily violate securities law unless information had not been made public beforehand.
#3: Flagship products are being sold
A company that is in financial trouble may tap its valuable assets and attempt to raise money in unusual ways. However, the last resort will be something as publicly visible as selling off a flagship product line. If you notice a company is selling what made it famous in the first place, something is obviously wrong.
All companies go through ups and downs
Every successful company has financial problems to deal with at some point. However, healthy companies will have savings and other resources to tap into that won’t be so visible to the public. When a company is making it obvious that it is in trouble, it likely is.