Canadian companies: The good, the bad and the ugly (Intro)

As the recession deepens, some once-mighty titans of corporate Canada are struggling to keep their companies afloat, while others are bucking the downturn.

Recessions leave no room for sentimentality. Already, some of Canada’s oldest and largest companies look to be in deep trouble. In the following pages, we try to answer the hard questions about five one-time titans of corporate Canada: How did they get into this mess? How bad is it? And what if the worst happens — and they fail outright?

One way to consider the likelihood of a company falling into bankruptcy is the Z score. Developed in 1968 by New York University professor Edward Altman, it weighs five ratios — equity to debt, return on total assets, and sales, working capital and retained earnings to total assets; any score below 1.8 is not good news for employees, investors and other stakeholders. The five companies we’re subjecting here to the harsh spotlight all certainly fit that bill.

Of course, there are winners in any scenario, and in ” The magnificent seven” you’ll find 10 companies whose balance sheets and business strategies look solid enough not just to survive the downturn, but to thrive.