In these times of economic uncertainty, employers aren’t the only ones asking questions during the hiring process. Workers thinking about making a move to a new company are also doing some research to make sure the new job they’re considering will still be there six months from now.
More and more, employees considering a career move are checking into the financial viability of prospective employers.
But pro forma financial statements may not always give an accurate picture, warns Warren Shiau, a software analyst at IDC Canada Ltd. in Toronto.
He recommends that workers check out a company’s financial statements, even though they look into the past, not the present. The cash from operations line item can tell you whether or not a company is actually making money from what it does.
It might also help to examine a company’s liquidity on its balance sheet. To do this, compare the current assets to the current liabilities. A 2:1 ratio is a good rule of thumb that the company will be able to withstand a cash crunch if, for instance, a customer doesn’t pay up. These short term assets can be quickly converted to cash. But, again, the numbers might not paint a clear picture, Shiau said.
So to be safe, it might be worth subtracting the inventory from the current assets before calculating the ratio. If the current assets are high in inventory – which may be out of date and worthless – it could be a bad sign.
This, Shiau said, has been known to happen. A networking company, for example, might have 90 per cent of its inventory tied up in switches that have become obsolete, meaning that they can’t readily be converted into cash.
Also, examine what direction the research and development spending is headed in, since, depending on the job, this might very well be the line item the IT paycheque is coming from. Obviously, it could be a bad sign if R&D has taken a nosedive over previous years.
Because financial statements aren’t available for private companies and start-ups, find out instead who invested in the company and how much, recommended one venture capitalist. And don’t just research the company you’re thinking of working for, also research their investors – what are their track records like?
But financial statements, even when they are available, aren’t enough, and as the example of Enron makes clear, can be extremely misleading, Shiau said. Workers might do well to hit the library and read up on what the business press has written about the company. This could potentially be more informative than a possibly manipulated financial statement.
And because financial statements can be so easily skewed, Peter Merrick, a Toronto-based financial planner, suggests employees take a close look at the benefits package being offered and strike a lucrative deal for what happens in worse case scenarios.
“And if they’re at a higher level, a company will provide it for them.”
Before signing on the dotted line, an employee would do well to have the employer agree upon what the employee’s severance package would be like if the relationship sours, Merrick said.
“Nobody really knows how strong a company is. What we can do is make sure the contract, the benefits and all that stuff, are iron clad.”
To find a company’s financial statements, go to its Web site and check out its investor relations section. In Canada, you can also find filings online at www.sedar.com. In the U.S., 10K Securities and Exchange Commission filings are less susceptible to marketing spin. These can be found at www.sec.gov/edgar.shtml.