How To Detect Energy Company Financial Distress Before It’s Too Late
The energy industry is in a world of pain.
So far in 2016, more energy companies have failed than in any year since the Great Recession. And this shocking rate of bankruptcy isn’t slowing down any time soon, with many more business failures expected in the months and years to come.
Doing business in this environment makes assessing credit particularly tricky. Fortunately, when it comes to predicting bankruptcy, there’s a clear pattern of behavior that can help you detect growing financial distress before it’s too late.
Read on to find out what to look out for – and what to ignore – as you manage risk exposure in your credit portfolio customers, suppliers and partners.
Red flags versus red herrings
The art of credit management is knowing when to take steps to mitigate risk without sacrificing sales opportunities.
By learning what signals to look out for, it’s possible to get a timely warning of financial distress. But it’s also important to know that some signals can be misleading.
For instance, payment history is a commonly used credit metric, but one which is notoriously unreliable when it comes to detecting financial distress for public companies. That’s because public companies have access to capital markets for financing, which means they can often make timely payments right until filing for bankruptcy.
The Altman Z-Score can be an excellent data point, especially for detecting default risk. But this metric can sometimes be too early to be useful as a signal for credit determinations.
A more timely signal is needed to make credit assessments for the companies you’d like to continue to do business with.
19 warning signs of financial distress
We’ve come up with a checklist of 19 signals of energy company financial distress. Download this special checklist to find out:
- Eight clear signs in financial statements and SEC filings that commonly occur in the months before bankruptcy
- Eleven often overlooked but easy-to-track market factors and financial risk indicators that signal growing distress
- Three false signals, that are either too early, too late, or too unreliable to be useful.
Given the soaring bankruptcy risk in energy markets, and the growing challenges faced by your energy counterparties, taking your credit risk management process to the next level is more important than ever. Download our checklist 19 Red Flags That Reveal Energy Company Financial Distress today.
Know the warning signs of energy company financial distress: Download the '19 Warning Signs' checklist
CreditRiskMonitor is a financial news and analysis service designed to help professionals stay ahead of public company risk quickly, accurately and cost-effectively. More than 35% of the Fortune 1000, plus thousands more worldwide, rely on our commercial credit reporting and predictive risk analytics for assessing the financial stability of more than 56,000 global public companies.
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 $150 billion in trade data on their counterparties every month, giving them visibility into their biggest dollar risks.