BP's Corner-Cutting Extends to Its Finances

Sun, 06/27/2010 - 22:38

In this latest column I discuss BP as a case study in management failure to maintain a margin of safety on multiple levels. While most of the commentary has focused on the company's shortcuts in its exploration business, BP also was operating on a razor-thin margin in its balance sheet, despite its professed strong cash flows and low leverage. Time after time in the past few years we have seen companies discover to their shareholders' misfortune how quickly backup lines of credit become worthless when something else goes wrong. 

Smart companies never forget that the odds of everything are 100%.

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