Another pair is dubbed ‘cash uses’ by Liberum. Here the red flags are paying dividends using debt, and companies which underspend in terms of preventing their capital goods from aging.
The final three danger signs of Liberum’s 12 are either governance issues, or can be best categorised as miscellaneous. They include a potential uplift in leverage ratios next year when accounting rules on operational leases change, any lack of board independence and finally, underestimating goodwill impairment discounts should be watched out for.
The full report from Liberum can be viewed here.
While this is a through piece of work and great starting point it should not of course be viewed as a bullet-proof way to avoid losing money when UK equities markets slide.
It should instead serve to reiterate the risks that investors face, even when dealing with companies as well established as the FTSE 100 constituents.
