Just been watching in amazement as Slater and Gordon (the legal firm) has self destructed. Unbelievable how quickly the share price has hit the wall. So wondering if this could have been forecasted...the answer...Probably.
All comes down to Quality of Earnings and debt I think. The correct ratio to use for Quality of Earning is the Accrual Ratio (google it if you are not sure how to calculate).
Anyway, according the Annual reports of 2014 though to 2012, the accruals ratio went from 9% in 2013 (meaning earnings based on Accruals was 9% of total earnings) through to a whopping 31% in 2014. Means that almost a third of the earnings is subject to potential manipulation by the company. Too big.
Debt as a % of Equity went from 36% in 2013 to 48.9% in 2014. So again, a big increase in debt.
So the writing was definitely on the wall. No surprises here. Move along.
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