NEW YORK, June 5, 2002 (PRIMEZONE) -- The recent rumors swirling around beleaguered WorldCom (Nasdaq:WCOM) that it is teetering near bankruptcy just might be premature, according to a recent study conducted by StockDiagnostics.com, which has examined the pre-bankruptcy financial statements of bankrupt public companies.
StockDiagnostics.com, a company that has developed a proprietary software that tracks non-financial public companies' OPS (Operational-cashflow Per Share) based on the public filings of those companies, recently completed a research study on 75 public companies, including Enron and Polaroid, that filed for bankruptcy between 1999 and 2002. The purpose of the study was to determine the efficacy of OPS as a predictor of a public company's deteriorating financial health.
For inclusion in the study a public company had to file financial statements with the SEC for at least 10 quarters before filing for bankruptcy. A maximum of 20 quarters were looked at in the study if data was available. A total of only 75 companies out of 7,342 public companies met this requirement. The study found that 69 out of 75 companies reported at least two or more quarters of negative OPS in the 10 quarters prior to their bankruptcies. The remaining six companies each reported one quarter of negative OPS in the prior 10 quarters.
In the study, Enron (Pink Sheets:ENRNQ) had totals of 10 positive and 10 negative OPS quarters out of its last 20 quarters prior to its bankruptcy. Global Crossing (OTCBB:GBLXE) had negative OPS in three out of its last four quarters just before filing for bankruptcy, including its last filed quarter ending September 30, 2001. Suprema Specialties (Pink Sheets:CHEZQ), a New Jersey food company, led all companies in negative OPS with all 20 or 100 percent of its prior quarters indicating negative OPS.
Kmart (NYSE:KM) historically reported negative OPS in its third quarters as indicated by its 20-quarter chart. However, in the first quarter of fiscal 2002, ended April 30, 2001, Kmart had negative OPS, the first such time that this characteristic appeared in a first quarter in five years. To the discerning investor tracking OPS (Operational-cashflow Per Share), this anomaly indicated that there could be significant problems looming on the horizon -- a red flag.
The study may bode well for WorldCom, which has demonstrated consistent positive OPS, yet is rumored to be teetering on bankruptcy. StockDiagnostics.com did a further exhaustive search of its database of 7,342 non-financial companies and found no company that reported 10 consecutive quarters of positive OPS had subsequently filed for bankruptcy. Based on this research, a company with an uninterrupted pattern of positive quarterly OPS appears unlikely to file for bankruptcy. Currently there are 777 companies that have reported 10 consecutive quarters of positive OPS, and of that group only 387 companies have had 20 consecutive quarters of positive OPS, according to StockDiagnostics.com. WorldCom falls into this elite group with 20-consecutive quarters of positive OPS.
To view WorldCom's and more than 7,300 public companies' OPS charts for four-quarter, 20-quarter and five-year histories, go to: http://www.stockdiagnostics.com
Cash Flow from Operations is a key indicator that Edward F. Hosinger, C.F.A., a securities analyst and founding partner with Excalibur Capital, Ltd. has been using for more than 30 years in determining the financial viability of a public company. Hosinger says: "As long as WorldCom's management can maintain positive Cash Flow from Operations, the probability is high that the company can avoid a bankruptcy filing, even though there may be the perception that the company is failing. Cash flow is perhaps one of the best ways to determine the health of a public company -- because when all is stripped away, the accounting gymnastics, the Pro Forma spin -- the simple fact is, if there is cash coming into a business it will continue to operate. Of course one must watch this on a quarterly basis for any changes."
About StockDiagnostics.com
StockDiagnostics.com has designed and built a proprietary data refinery that automates the process of collecting, sorting, and organizing large amounts of securities pricing and financial data into comparative financial ratios. These ratios are used to identify Financial Statement and securities pricing variances or anomalies and to continually monitor changes in the performance of public companies.
StockDiagnostics.com has coined the term OPS, which stands for Operational-cashflow Per Share." This is derived from the line item "Cash Flow from Operations" which appears in a company's quarterly and annual Cash Flow Statement filed with the Securities & Exchange commission. OPS is calculated by dividing a company's Cash Flow From Operations by the total number of shares outstanding. After conducting in-depth research on Operational-cash flow Per Share, StockDiagnostics.com determined that OPS can be used to measure the quality of a company's EPS and for monitoring its overall financial health. Cashflow from Operations is a company's financial lifeblood and a sudden decrease in it can drain this lifeblood, causing an increase in debt, share dilution, share price erosion, and in the more extreme cases, bankruptcy.
OPS, OPS Ratings and The EPS Syndrome are registered Trademarks (TM) of StockDiagnostics.com.