The World Com bankruptcy had a major role in the accounting and auditing regulations that have been introduced in recent years. Reflect on that situation (May 2012) and consider the following.

The market price of WorldCom is $2.00 per share and declining.

Stock analysts state that WorldCom is doing surprisingly well despite tough times throughout the industry.

The company has $2.3 billion in cash, which translates into $20.50 book value per share.

The first-quarter results indicate sales of $8,120 million and $240 million in pre-tax operating profits a decline of 16% in sales and 40% in profits while other firms in the industry are reporting even steeper sales and earnings decreases. The company has $104 billion in assets and $44 billion in debt.

WorldComs line costs are holding steady at about 42% of sales while other companies are experiencing rising line costs as a percentage of sales.

Does this suggest that WorldCom is adept at managing its excess capacity

problems during a period of slack demand?

Is this a cautionary warning signal of problems at the company?

You call your broker and find that the stock has declined to $1.75 per share in early trading.

What do you do?