Friday, October 9, 2009

Is CBS Really Going Bankrupt?



Two weeks ago, we noted that CBS had been pinpointed by Audit Integrity as one of 10 big companies at risk of bankruptcy.

This prompted an outraged denial by CBS.

As the banking collapse illustrated, any time a company denies that it's about to go bankrupt, it makes sense to assume that the company is indeed about to go bankrupt--and then analyze the situation for yourself.

We've now done that for CBS. Here's the bottom line:
CBS is not on the verge of bankruptcy. The company is, however, highly leveraged, and its cash flows have been deteriorating rapidly. So if current trends continue, the company will be forced to cut more costs or risk violating debt covenants. If CBS's cash flows keep deteriorating after that, it will very much be on the verge of bankruptcy.

CBS has also blown billions in recent years stupidly buying back its own stock at much higher prices--shareholder value destruction at its finest. So the company's weak financial position is very much of its own making.


Posted by Kelsey Hoffman

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