§ 01
A going concern warning is not a prediction of bankruptcy, but it is the auditing profession’s formal statement that survival is uncertain. Companies receiving this opinion often have negative working capital, recurring losses, or inability to access financing.
§ 02
| Warning Sign | What It Means | Severity |
|---|---|---|
| Negative working capital | Current liabilities exceed current assets | High — liquidity crisis |
| Recurring net losses | Multi-year pattern of losses | Moderate — depends on cash runway |
| Covenant violations | Breaching debt agreements | High — lenders can accelerate debt |
| Cash runway < 12 months | Will run out of cash within a year | Critical — must raise capital |
§ 03
Cash Runway = Cash & Equivalents / Quarterly Cash Burn
§ 04
Look up a biotech or early-stage company in **Fundamentals**. Check their cash position and quarterly burn rate. If runway is under 12 months, look for going concern language in the 10-K.
§ 05
A biotech has $15M cash, burns $4M/quarter, has no revenue, and just received a going concern opinion. What does the math tell you?
§ 06
§ 07
A company's 10-K includes a 'going concern' paragraph — auditor notes 'substantial doubt' about ability to continue as a going concern within 12 months. Stock is at $5, previously at $40. Disciplined reaction?
Five questions · AI feedback
Sit with the ideas.
A biotech company has $15 million in cash, burns $4 million per quarter, has no revenue, and just received a going concern opinion. The stock dropped 25% on the news. Is this a buying opportunity?
Why: