Audit Integrity, a research firm, has come out with a list of the large American companies which are most likely to go bankrupt in the next year. The data behind the figures seem valid, but some of the companies on the list which include CBS (CBS), Sprint (S), AMD (AMD), and Sirius XM (SIRi) seem improbable candidates.
The corporate communications staffs of these companies and their outside public relation firms will tell their managements to keep quiet and not react. A reaction, they will argue, just makes it look like Audit Integrity knows what it is doing and that there is some validity to their analysis. Audit Integrity is probably counting on that. It will get a lot of exposure for the study and little ,if any, legitimate criticism.
Audit Integrity says its research services support risk management practices that help investors, insurers and others lower risk and improve performance with objective ratings and reports.
The basis by which it determines which companies are in trouble is to look at three methods for examining firms tha may be in trouble. Audit Integrity says“Each of these three approaches – accounting-based, market-based, fraud-based –is moderately effective on a stand-alone basis in predicting bankruptcies. Since the models are not highly correlated, each model has the potential to add incremental value to the other models. Audit Integrity combined the three approaches to determine whether the accuracy ratio of an aggregate model would surpass that of any single approach.”
The list does include some companies that are probably in deep financial trouble including Rite Aid (RAD) and Macy’s (M).
Also listed are American Air (AMR), which just raised $2.9 billion, which the analysis probably does not take into account. Transportation companies Continental Air (CAL) and Hertz (HTZ) are on the list.
Some of the better known public companies that have been targeted by Audit Integrity include advertising giant Interpublic (IPG) and US tire company Goodyear (GT). Not surprisingly, Las Vegas Sands (LVS), a casino firm that has battled for its life for months is included.
The balance of the list is Federal Mogul (FDML), Textron (TXT), Liberty Media Capital (LCAPA), Mylan (MYL), Apartment Investment and Management (AIV), Redwood Trust (RWT), Oshkosh (OSK) and Amkor (AMKR).
Douglas A. McIntyre