A third of ASX companies in serious financial strife
Nearly one third of all ASX listed companies, including more than half of the bottom 500, were facing serious financial uncertainty in 2013, a new report from CPA Australia has found.
The ground-breaking analysis of nearly 16,000 annual reports from Australian publicly listed companies over the period 2005-2013, revealed that there were more going concern warnings highlighted by independent auditors in 2013 than during the global financial crisis (GFC), when warnings peaked at 22 per cent. Going concern ‘emphasis of matter paragraphs’ are used by independent auditors to flag significant uncertainty in an individual company’s ability to continue in business for the foreseeable future.
CPA Australia chief executive, Alex Malley, said the extraordinary findings were a sobering reminder of the fragility of the Australian economy and the challenges many businesses face.
“What this new report shows is that there has been a steady increase in going concern warnings among the middle and bottom ASX listed companies since 2011.
“Perhaps most alarmingly, this new research shows that in 2013, those numbers surged, with auditors raising a red flag on more ASX companies than at any time during or following the GFC.
“We’ve been talking about the potential impacts of the slow-down in China, the strength of the Australian dollar and the effects of the tapering mining boom on the economy for some time.
“Now, this report, compiled based on virtually all companies listed on the ASX, shows these economic factors are being felt across the market and are putting almost a third of ASX listed companies at risk of financial catastrophe.”
“It really begs the question how our economy would be placed were we to face another shock like the GFC?”
Mr Malley said the data revealed that going concern warnings had risen most sharply in the energy and mining sectors, where over 40% of companies were judged at risk in 2013.
However, he said consumer staples, industrials, health care and utilities all experienced an increase in going concern warnings in 2013.
“It underscores the simple reality that we have not done enough to fill the void the end of the boom is already leaving in our economy or to address the competitiveness challenges that lay ahead for our nation.
“With nearly a third of companies now having a cloud over them in terms of their financial future, the task is urgent.”