Business Bankruptcy Timeline: Timeless Lessons From Eastman Kodak
You've likely experienced a multitude of "Kodak Moments," from the Spring Break trips you took with friends to your child's first few hours of life. You might have albums filled with photographs that started on Kodak film.
Now, the once dominant consumer brand is a memory itself. Although Eastman Kodak ultimately emerged from bankruptcy as a much smaller company focused primarily on commercial imaging, this case study is still an instructive example of a high-profile company toppled by market forces.
Creditors and suppliers may have been caught off guard by this iconic company's bankruptcy, but it’s story can help you see the early warning signs of financial stress, and prevent similar losses.
Early Signs of Business Failure
The digital revolution in photography might have seemed abrupt, but it actually took quite a bit of time. Kodak began to experience declining cash from operations as far back as 2007, long before business failure.
In 2009-2011, early signs of financial stress started to appear, such as increasing operating losses and asset sales.
Other indications included:
Negative shareholders' equity and tangible net worth
The need to increase borrowing
Insufficient cash flow relative to operations
Falling stock prices
Rating agency downgrades
FRISK® score hitting the red zone in March 2011
From Q3 to Q4 2010, Kodak's net income fell an astonishing 1,222 percent, and pre-tax income dropped by 2,765 percent. By March of 2011, free cash flow fell 345 percent, which made bankruptcy imminent. But, the early signs were certainly there for anyone who was looking. By recognizing these red flags, creditors could have taken steps to protect their credit portfolio.
Strategies to Reduce Risk: Reliable Metrics, Early Warning
WIth growing financial risk, an early warning can mean the difference between increasing bad debt and collecting the cash you are owed. But timing is tricky. Even when a customer’s financial condition deteriorates, we often need to work with them right until it is no longer viable.
In early financial stress, many customers can still justify credit terms. We can’t over-react and tighten credit too early, or we risk giving up important sales. But, when the company can no longer generate enough cash from operations and liquidity suffers, credit terms need to be adjusted. At that point, it isn’t prudent to ship on credit, without appropriate assurances of repayment.
A reliable predictive financial metric can therefore help you to avoid significant loss. Some individual indicators, such as the Altman Z-score, would have influenced you to act prematurely in this case. Payment data might not signal anything at all, for a public company. That’s why the right predictive model, incorporating a wide range of timely financial data, is key.
Timeless Lessons From the Kodak Bankruptcy
Today, business bankruptcy risk is more than 70% higher than in 2010, when Eastman Kodak was in free fall. The pattern of financial distress in Kodak's bankruptcy timeline is a growing problem today, in industries as diverse as commodities to retail.
See the early warning signs of financial stress:
Download the complete Eastman Kodak business bankruptcy timeline
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At the core of CreditRiskMonitor’s service is its 96%-accurate FRISK® score, which is formulated to predict public company bankruptcy risk. One of four key components calculated in the FRISK® score is crowdsourced subscriber activity. This unique system tracks subscribers' patterns of research activity, capturing and aggregating the real-time concerns of what are essentially the key gatekeepers of corporate credit. Other features of CreditRiskMonitor’s service include timely news alerts, the Altman Z”-Score, agency ratings, financial ratios and trends. CreditRiskMonitor’s network of trade contributors provides more than $140 billion in trade data on their counterparties every month, giving them visibility into their biggest dollar risks.