How to spot a crisis in the making

Lessons from the past to help you avoid the next debt-led blow-up

Interestingly, lots of similarities are there in all the 10 cases mentioned in the previous pages. So, if you look carefully, there are some common threads and learnings from all these cases. Here we have noted down some of them.

Ambitious expansion: Being ambitious is good, as it drives a company to grow bigger. Over the years, many small companies have emerged as multi-baggers. However, one should always remember that it is wise to grow slow and steady instead of growing in spurts. A case in point is Jaiprakash Associates and its capex of ₹62,000 crore.

Unrelated diversification: All companies try to diversify in order to generate revenue from multiple sources. However, when a company ventures into unknown territory where it does not have any kind of experience, it can set alarm bells ringing, as was the case with Future Group.

Imprudent capital allocation: When it comes to capital allocation, companies should invest in those areas that can give above-average returns on capital. Otherwise, it is better to distribute it to shareholders. Network18 expanded into entertainment channels in the TV segment but these ventures were loss-making and cashdraining, which affected even profitable ones.

The unchanged status quo: It is always important for the management to assess and analyse ongoing changes in the sector. If you stick to old beliefs and ignore the changes, it will come to bite you. Future Retail could have survived despite all the issues if its promoters weren't so steadfast in their stance against e-commerce, which was then booming. It ultimately came to bite them back as COVID forced them to shut the shop.