If the equity drops below 50% of the capital, this is due to the losses carried forward.
It is a serious signal.
Almost half of bankrupt businesses report this negative signal.
(*)
In the previous legislation (before 01/05/2019), this would engage the alarm bell procedure.
As of this observation, the general assembly had to be convened to deliberate on the dissolution of the company or decide in taking on other measures.
When the net assets would fall below 25% of the capital, any interested party may request the dissolution of the company before the court.
(*) Source: Companyweb: results based on our own study into causes of bankruptcies.
If a business's customer credit levels are falling, that could be a sign it is not selling so much (so has less receivables) or has tightened up its payment policy because it is short of liquidity.
Most businesses which fail have very low customer credit levels.
If a business's supplier credit levels are rising continuously, that may indicate it cannot pay its suppliers on time and hence is fighting liquidity problems.
NB: with a healthy business, this may be due to a conscious or new payment policy
Setting your customers shorter credit terms means they have to pay sooner.
The longer your payment terms, the more uncertain you are that you will be paid what you are owed.
(= more risk)
If a supplier allows a customer more time to pay, that may mean they have great confidence in them.
Customer credit = cost
Supplier credit = income
