Thursday 16 April 2009

UK PLC - This Company Is Now In Default

There are usually indications that a company is in trouble, for those who are either aware or expert enough to understand them. The first is often a continuing failure to deliver its promised goods or services either on time, or at all. Another is persistent difficulties in its systems for management and control, together with continuing budgetary issues. Amongst these are decreases in revenue in parallel with increases in costs, and little evidence of the information on or the ability to estimate real costs, or to function within prescribed limits. One possible sign is large increases in pay for senior people, together with churning of the stock options, that do not relate either to performance or market norms.

A more worrying issue is uncertainty or obscurity in relation to the sources of funding and capital, both short term and long term. Are the publishing borrowing figures, true, or is there a lot “off balance sheet” or disguised, for example delayed payments to suppliers, or for funding its activities? More difficult to judge is what is happening in the flows of loans and monies around its subsidiaries and to what purpose, most of all is if a good deal of this is off shore, one way or another.

If, for example, a company has a subsidiary devoted to giving credit to its customers, but it emerges the company is forced to lend large sums to it to keep it going, this is a bad sign. If the company then requires its subsidiary to lend some of this back again to the company to help balance its books, then this is very bad. It means that the fuses in the financial system have started to blow.

If further to that the company engages in frantic marketing activity that seems to make little commercial sense, this will mean that all is far from well. If it announces a series of grandiose projects that will tie up large amounts of capital and revenues, say in 2012, as evidence of its confidence for the future it is time to sell the stocks and shares and run away as fast as you can.

So, now, what about UK PLC, where we are all stockholders whether we like it or not? Time for the Classics and The Fall Of Rome, conjugate, Busto, Bustas, Bustat, Bustamus, Bustatus, Bustant, or I am bust, you are bust, he is bust, we are bust, you are bust, everyone is bust.

1 comment:

  1. Sadly very true. The FT, a Brown/Labour organ struggling to push "shoots" are reporting a £175 billion borrowing requirement. Beggars belief, yet they bang on about recovery later in 2009. That level of debt is suicide.