Review by Regina Engel Originally published in 1985, Why Companies Fail remains a useful, simple guide for the average businessperson to identify and avoid the traps that lead to bankruptcy. Noting that libraries are full of books containing prescriptions for financial success, the author chooses to focus on failure so that it can be avoided and the number of bankruptcies reduced. He also feels the book fills a gap in the education of students and business people who are not otherwise instructed in how to manage a company on the brink of failure. To aid in understanding his analysis, he classifies businesses into four categories depending on the strength or weakness of their product and their financial condition, calling them eagles, tortoises, condors, and dinosaurs. As he explains, \"[e]agles have healthy products and finances, tortoises have weak products, condors have weak finances, and dinosaurs have weak products and finances,\" Condors and dinosaurs are the primary focus of the book, since financial issues lend themselves more to generalization. The five chapters that are the heart of the book set out the specific financial reasons for business failure, any or all of which could precipitate the bankruptcy. Each contains actual cases of companies to illustrate the type of problem. Problems in a company's cash-flow cycle are discussed in Chapter 3. The author opines that mismanagement in this area is probably the largest single cause of failure, but maintains that staying on top of the problem can be accomplished with a good spreadsheet program and that with the proper information \"every worthy business\" should be able to obtain the funds it needs. In Chapter 4 the topic is how to avoid \"getting buried under current assets.\" The advice here is to monitor both inventories and accounts receivable by comparing their size to the company's investment in total assets and to analyze carefully when that ratio rises whether that is the desired goal. In Chapter 5, entitled \"Getting Squeezed by Equipment,\" the author can only warn of the risks involved in investing in long-term assets. He concludes: \"Unfortunately, there are no fail-safe methods for choosing the right amount of fixed assets since the optimal quantity depends an the unknown level of future sales.\" Chapter 6 deals with a company's debt-to-equity ratio, emphasizing that a major disadvantage to debt financing is that it limits alternatives, and a firm so burdened is allowed fewer mistakes than one with sizable net worth. In Chapter 7, entitled \"Getting Pinched by Short-Term Debt;\" the author describes the trap where management decides to speculate on lower future interest rates and is wrong. Chapter 8 sets forth methods of detecting bankruptcies to enable the reader to identify the condors, and Chapter 9 aids failing companies by an examination of how other companies in similar situations have extricated themselves. Chapter 10 contains advice on investing in bankrupt companies. Following a concluding chapter summarizing his concepts, the author includes two appendices, one setting forth tables of failure rates, which, of course, does not include what has happened in the last fourteen years, and the second providing basic accounting for nonfinancial readers. A glossary is also included for those whose background in the field is limited. | Why Companies Fail by Harlan D Platt, Paperback | Indigo Chapters