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Emerald Group Publishing Limited
Copyright © 2000, MCB UP Limited
A question of sinking or swimming
A question of sinking or swimming
Keywords Plimsoll Publishing, Business analysis
Over one in four aviation equipment companies is at high risk of failure, according to the latest (Spring, 2000) publication from Plimsoll Publishing Ltd. For some, this could be a scary statistic and for others, the opportunity to strike out against the competition. But just how do you spot whether your customers or competitors are financial losers and how can you turn this to your advantage?
The Plimsoll Portfolio Analysis: Aviation Equipment has identified and individually analysed 1,054 UK-based companies and based on their financial performance over the last four years has placed each of them into five ratings. These are: strong, good, mediocre, caution and, lastly, danger. Of the 1,054 companies analysed, 329 were rated strong, 100 good, 119 mediocre, 226 caution and 280 danger.
Of the 34 companies included in the analysis currently in receivership, liquidation or dissolved, 71 per cent of these companies were rated as caution or danger up to two years prior to their demise. However, not every company rated caution or danger is certain to fail. Companies can climb out of danger. From last year, 91 companies have been able to achieve this task, although often this is a slow process and perhaps requires new owners, management or certainly some serious decisions to be made.
Their improvement has been overshadowed by the 106 companies that have suffered a decline in their fortunes and have fallen into danger. Perhaps more alarming are the 174 companies that are in their second year in danger. For these companies, time is running out.
The 41 per cent of the industry rated as strong and good should not consider their position safe, as 81 companies last year have lost their strong rating and have been replaced by 135 new entrants that have prospered and delivered an excellent year.
The report likens companies to ships and aims to put a "loading line" to companies, essentially for the non-accountant. The emphasis of the model is to avoid a company failure. If corrective decisions are made early then perhaps many of these companies will be saved. The research was conducted to discover the ingredients of company failure and the early warning signs visible in company accounts. This work suggested that a company could take several years to fail. The model also defines success.
Each of the 1,054 companies is included as a separate page and, using a series of six charts over four years of audited accounts, the model aims to show how a company's character is shaped over a period of time. The graphical layout encourages comparisons of individual companies and aims to demonstrate the financial constraints or strengths under which a company is working.
Rating companies and allocating them phrases, especially "danger", is emotive and, if bandied around carelessly, is fuel for the lawyers. This is not the intention of the analysis. For many in the industry "danger" means "opportunity" as far as competitive pressure or acquisitions are concerned, as many of these companies could be rather attractive prospects. Providing an understanding of the structure and nature of a company with which you trade and compete is difficult and setting this rating into context is a skill for the true decision maker. As many as a third of the industry will need to make some tough decisions to avoid sinking and swim on into next year.
The Plimsoll Portfolio Analysis: Aviation Equipment, covering 1,054 individually analysed UK companies is available for £305.00. You can place your order by calling Jennifer Ovington on +44 (0)1642 257800. Readers of this publication can obtain a 5 per cent discount when mentioning this article on ordering.