Of companies which fall behind with paying their tax, one in seven fails (*)
The company reports overdue debts to the tax authorities at the end of the financial year in its recently filed annual accounts (item 9072). This may indicate serious financial difficulties, especially if the company in question also shows liquidity problems.
Please note that this information is based on recent annual accounts and thus reflects the state of overdue debts as of the closing date of the financial year.
(*) Source: Companyweb: results based on our own study into causes of bankruptcies.
One quarter of those which fail have a general indebtedness > 100% (*)
A general indebtedness of < 50% is absolutely healthy.
General indebtedness = debt/total assets
This shows what percentage of a company's total funds is being provided by third party funds, or debt.
Being > 100% indebted means a company's equity assets are negative, due to carrying over major losses:
so its liabilities exceed 100% of its total assets.
Such a situation is unsustainable in the long term (cf.
alarm bell procedure).
= A very bad sign!
Businesses do benefit from having a certain level of debt, however, as interest on debt capital is tax-deductible, for example.
Deducting notional interest also plays a major role in choosing between debt and equity in Belgium.
(*) Source: Companyweb: results based on our own study into causes of bankruptcies.
Negative returns for two years is a major heads-up to the Court of Commercial Enquiry at the Court of Commerce.
An established business which loses money year in, year out has no future anyway.
New businesses may often show a negative return (high startup costs, low sales at first, ...) but things should clearly be getting better after two years.
Profitability and liquidity together give a good idea of how a company is faring.
| Liquidity | Profitability |
|---|
| + | - |
| + | Healthy | Chronically sick |
| - | Temporarily sick | Dying |
(**)
(**) Source: Handbook "Financial analysis process" by Hubert Ooghe and Charles Van Wymeersch (Intersentia)
The company you are looking for has holdings in one or more other companies.
Any problems with these subsidiaries could affect the parent company's results badly.
To get the full picture of a company's financial health, it's best to look at its subsidiaries too.
