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Emerald Group Publishing Limited
Copyright © 2001, MCB UP Limited
Business centres analysis
Business centres analysisKeywords: Business centres, Finance
Almost half of all companies in the business centres industry increased their level of debt last year suggesting that companies are more confident than ever before. This is according to the latest Plimsoll Portfolio Analysis, February Edition 2001.
This analysis of 304 companies also revealed that most companies are using debt in their day-to-day business. A total of 89 per cent of all business centres companies had some form of debt last year. Only 15 companies showed no debt at all.
Adding debt takes confidence, not only in the future ability of the company to pay the debt back, but also to generate extra profits to justify this risk.
Why would almost 46 per cent of the industry add debt last year? Two key reasons seem to be increasing their formal lending:
Companies are financing losses in a bold attempt to keep afloat and stay in the marketplace. For 24 companies borrowing money is a means of staying in business. In fact these are located and named in the analysis as having taken on more debt last year whilst funding losses.
Companies are investing to become more competitive believing that extra investment in assets will ultimately deliver more profit. Only 42 out of 66 companies or 64 per cent of those adding extra debts increased profits last year.
Obviously too much debt is a bad thing. Yet using debt should not be despised. The research suggests that a typical business centres company finances on average 33 per cent of their assets. This statistic, however, hides the realism that almost 25 per cent of companies have a debt level twice this average.
"Ironically keeping too much cash can also be dangerous! For me, the 22 cash rich companies located should watch out. It is not going to earn a great return sitting there; it needs to be put to good use. I am in no doubt that it would be an opportune time to seek out an exposed competitor and snap them up", says David Pattison, general manager of Plimsoll.
A full copy of this Business Centres Analysis, February 2000 is available for £305. For more information tel: +44 (0) 1642 257800 or visit www.plimsoll.co.uk