Is your firm in a credit crisis?

Mar 08, 2009

THE economy is sluggish, the job market tight, corporate losses have replaced profits, while forced retirements and layoffs are a routine. Do you think your employer is headed down the drain? Are you worried about your company’s stock portfolio?

By Fred Ouma

THE economy is sluggish, the job market tight, corporate losses have replaced profits, while forced retirements and layoffs are a routine.

Do you think your employer is headed down the drain? Are you worried about your company’s stock portfolio?

You owe it to yourself to keep track of your company’s financial health. While there is no clear warning sign that the company could be in a downward spiral, there are at least some simmering indicators of trouble. Learn how to read them and protect yourself.

Spending patterns

How well do you trust your company? Charles Ocici, a business development executive with Uganda Enterprise, says you should know how to interpret the danger signs.

For instance, when management goes on a sudden spending spree after making a small profit, the company is depleting its resources too quickly and soon will be cash poor.
When vendors are calling and asking “where’s my money?” the company is cash poor and cannot pay its bills. Serious financial trouble can’t be far off.

And when the budget is slashed abruptly, the company is desperate for cash.
Also, when funding for business travel and continuing education disappears, trouble is looming.

Unexplained layoffs

After changing the spending patterns, Ocici says if layoffs have not happened yet, they will soon.
When veteran employees are forced to take early retirement, while newer ones are laid off, you may be working for a sinking ship? It is time you jumped overboard, lest you fall a victim of a ‘titanic’ repeat.

Read about it

Looming danger is not always obvious. The bigger the company, the harder it is to see the signs. If this applies to you, pay attention to what financial experts are saying. Study industry trends. Read company press releases.

Follow the stock price and watch for sudden declines. Also, search for news about your company written by outsiders. “Do not assume that your executives are being upfront with employees,” warns Patrick Okee, a workplace researcher. “The press can dig up dirt on a company long before executives are forced to admit wrongdoing,” he adds.

Have a shareholder’s mind

Publicly-traded companies are required by law to inform shareholders of their financial health. If your current or potential employer sells stock to investors, you can easily learn what the shareholders know by getting a copy of the latest financial statement and annual report.

If you are not an economist and are scared of numbers, don’t worry. Thousands of annual reports are available for free, along with advice and tips on how to read them at the Capital Market Authority.

Explore financial reports

When researching about a potential employer, numbers tell the story. “Go back a couple of years in the annual reports to see trends,” recommends Ocici. “Find out what percentage of revenue comes from various sources. Look at how the flow of revenue changes over time. Examine the expenses and how they’re allocated. If it seems something is missing, you should ask more questions.”

John Mbuga, a stoke broker and fund investor, says you should think of choosing a potential employer the same way you would decide where to invest. “Look at revenue, growth, earnings, and positive cash flow. What’s your risk tolerance? If it’s a start-up company, look at the business plan.”

Spreading the risk

What if much of your retirement money is invested in company stock? “Beware of having too much company stock in your retirement plan,” says Morez Jenkins, a financial adviser for an investment firm. “In case the firm’s stock takes a dive or the company begins to fail, you don’t want all your eggs in one basket.” Protect yourself and your money by spreading the wealth across different investments.

Above all, keep your head out of the sand. Your employer’s financial health is as vital as your own. If you stay alert, you have a better chance of avoiding financial disaster, including the stress that comes with it.

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