Posted: October 15th, 2022

What are at least 3 financial indicators (or “red flags”) that a company may be in financial distress?

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For this assignment, you’ll be listening to two podcast episodes and reading one article, and then answering a few questions below in your own words. This assignment will help you prepare for our midterm project, which will be a case study in which you look at a failed company and decide/determine whether there were any clear red flags that would have indicated to managers/investors that the company wouldn’t be lasting much longer.
Instructions:
1. First, please read the article: “Financial Ratios to Spot Companies in Financial Distress” by Ben McClure: https://www.investopedia.com/articles/financial-theory/10/spotting-companies-in-financial-distress.aspLinks to an external site.
2. Next, please listen to the Marketplace Morning Report Podcast Episode from September 23rd, 2021 entitled: A look back: the Enron scandal after nearly 20 years (you can find this for free on the podcast app or wherever you get your podcasts). This episode is only approximately 8 minutes long.
3. Finally, please listen to the Marketplace Morning Report Episode from Thursday September 30th, 2021 entitled: Enron’s fall provided a valuable lesson about personal finances. This episode is approximately 8 minutes long.
Questions:
Please answer the following questions using 5-8 complete sentences. Please make sure to use your own words.
1. What are at least 3 financial indicators (or “red flags”) that a company may be in financial distress?
2. In addition to financial indicators, what are some other indicators that might help a manager spot that a company isn’t doing well?
3. Google/research the Enron scandal. Explain in 5-10 sentences, what happened at Enron?
4. Who is Bethany McLean and how is she tied to the Enron scandal?
5. What current company does the Marketplace Morning Report podcast compare to the Enron scandal?
6. What does Bethany say is the line between a visionary and a fraudster?
7. What was the big difference between the Enron scandal and the mortgage crisis of 2008? What were the similarities?
8. What is the danger of not diversifying your portfolio? Do most companies over time perform as well as the stock market as a whole?
9. Jason Swieg from the Wall Street Journal describes on the podcast a time he was a giving a talk about the importance of diversification. One person objected and said he works for the safest company in America and will never diversify. What company did he work for and what happened to the stock of that company over the following 20 years? What did Jason learn from that experience?

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