Financial instability common in ASX-listed companies

More than a fifth of Australian Securities Exchange (ASX)-listed companies are in a state of financial distress, showing similar characteristics to a company on the verge of failure, a snapshot shows.   

However, financial services institutions significantly improved their “health score” in the last 12 months, according to the Lincoln Indicators report, with tighter regulatory conditions and better operating conditions linked to improvements in their cash flow.  

While 26 per cent of around 2000 surveyed companies showed “strong” or “satisfactory” financial health, measured by a robust balance sheet and good cash flow, more than 30 per cent were showing either early warning signs of financial difficulty or were in a state of distress.  

Mining and healthcare dominated the “distressed” category, showing higher than average debt properties and low operating cash flow.  

Companies in financial distress would find it difficult to recover from negative developments and had similar properties to failing ventures, according to the report.  

Lincoln Indicators CEO Elio D’Amato said it was worrying how many companies were leaning towards the unstable side of the financial spectrum.  

“According to our Health of the Market report, approximately two thirds of ASX-listed companies are exposed to unacceptable levels of financial risk,” he said.  

“This report is a timely reminder that investing in the market can be a minefield for those not willing to look at the accounts of their companies.”