Bankruptcy in the stock market is not uncommon. Suddenly, stocks declare bankruptcy, trapping millions of investors. How can I avoid buying the stock of a company which is heading towards bankruptcy?
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2 Answers
You can avoid companies that might go bankrupt by not buying the stock of companies with debt.
Every quarter, a public company must file financials with the EDGAR system called a 10-Q. This filing includes unaudited financial statements and provides a continuing view of the company's financial position during the year. Any debt the company has acquired will appear on this filing and their annual report.
If servicing the debt is costing the company a substantial fraction of their income, then the company is a bankruptcy risk.
answered Nov 13, 2016 at 13:57
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Of course some tried to counterfeit these statements in the past, and it ended with some free wrist jewelry courtesy of law enforcement. Controls have improved since then, but there is always that kid in a suit that thinks he is too smart. Commented Nov 14, 2016 at 12:33
Research the company. Obtain and read their current and past financial statements. Find and read news stories about them. Look for patterns and draw conclusions.
Or diversify to the point where one company failing doesn't hurt you significantly.
Or both.
