In light of the swiftly ascending interest rates, it piqued my interest to uncover the quantity of undead entities lurking about. By undead entities, I refer to companies that will grapple to meet their debt interest obligations, not to mention the principal repayment.

Furthermore, examining the figures below will demonstrate that these companies are highly unlikely to secure debt refinancing. This precarious situation can lead to insolvency, so make sure to scrutinize your portfolio for any such entities!

Unveiling the Undead Screen

This elucidates the framework of the undead stock screen:

• All global entities
• Market capitalization exceeding one billion U.S. dollars
• Select the lowest 50% of companies based on Net Debt to EBIT ratio
• Piotroski F-Score less than five
• Recent update of financial statements – within the past six months
• An External Finance ratio (Change in Assets – Cash from Operations) / Total Assets) greater than zero. This implies a company's incapacity to fund its asset expansion using internally generated funds (cash from operations)

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Selecting Custom Ratios

Before delving into the roster of entities.

Keep in mind, this merely constitutes a compilation of the optimal undead detection ratios I devised.

The stock screener encompasses a myriad of other ratios such as:

• 1yr Growth Total Debt – indicates the one-year percentage change in Total Debt.
• Altman Z-score aids in predicting insolvency
• Montier C-Score to flag companies resorting to accounting manipulations
• Debt to Equity
• External Finance Ratio calculated as (Gross change in total assets for the year – net cash generated from operations) / Total assets at the end of the year
• FCF to Debt calculated as FCF divided by / Total Debt
• Leverage Ratio equates to total debt divided by the average total assets of the company over the past two years
• Net Debt to EBIT
• Net Debt to MV computes the Net debt (Total debt minus Cash ) / Market value of the company
• M-Score (Beneish) uncovers companies manipulating their earnings

For a comprehensive list and their descriptions, refer to: Glossary of ratios to spot undead companies

A Roll of Dire Entities

This screen furnishes a catalogue of entities in a dire fiscal predicament.

You can potentially employ any debt or leverage ratio to sort the outcomes, spotlighting the most wretched undead entities. I arranged this catalogue employing diverse ratios to provide an impression of the screener's capabilities.

Ranked by Leverage Ratio

Initially, the catalogue was ranked from highest to lowest based on the Leverage Ratio. The Leverage Ratio = Total debt / (Average Total Assets)

Hence, it represents the total debt relative to the average total assets of the entity over the past two years.

Here is the roster:

Ranked by Net Debt to EBIT

Subsequently, the roster was arranged from highest to lowest based on Net Debt to EBIT.

The Net Debt to EBIT equates to (Long-term debt + Short-term debt – Cash) / Earnings before interest and taxes (EBIT).

This metric delineates the company's ability to meet interest and principal payments on its debt. A lower ratio signifies a healthier financial standing while a higher ratio implies the opposite.

For instance, the highest value below is 1572. This denotes that Net Debt equals 1572 times EBIT or that EBIT comprises a mere 0.06% of Net Debt (1/1572). Considering this level of EBIT, the company cannot even cover a 1% interest payment without incurring a loss!

Here is the roster:

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Ranked by Free Cash Flow to Debt

To gauge if the company amassed sufficient cash to service interest or repay debt, I arranged the outcomes from lowest to highest based on Free Cash Flow (FCF) to Total Debt .

This ratio offers insights into the proportion of the company's total debt in relation to its free cash flow (Cash from operations minus Capital expenditure).

The most adversely rated entity with a value of -309 exhibited extremely negative free cash flow, depicting ominous news in the event of debt servicing obligations.

Here is the roster:

Ranked by Debt to Equity

To encompass a classic debt metric, the roster was organized from highest to lowest using the Debt-to-Equity ratio. It equates to Total Debt / Common Shareholders Equity.

As depicted, the most precarious entity holds debt exceeding 17 times its equity!

Here is the roster:

A Commencement, Not a Conclusion

Undoubtedly, you are already aware that a screen merely marks the commencement.

Although an entity listed may not be undead for a valid reason, when it lands on the list, it serves as a red flag warranting a thorough examination.

Wishing you prosperous investments!

PS To commence employing ratios of this nature to sift out Undead entities from your portfolio straight away – Click here

PPS It's effortless to become distracted and put off crucial tasks, so why not sign up right now!

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