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    Patrick Kiragu Mwangi BA, BSc., MA, ACSI
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    Businesses collapse for a variety of reasons. More often than not the signs of failure appear relatively early on and may be easy to discern for the perceptive observer. However, corporate leadership may simply be in denial or may deliberately suppress the symptoms of failure in an attempt to ‘kick the can down the road’. Here we look at some Critical Failure Factors (CFFs) that indicate the onset of corporate failure and accompanying metrics that should act as a wake-up call to senior corporate management.

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    Businesses collapse for a variety of reasons. More often than not the signs of failure appear relatively early on and may be easy to discern for the perceptive observer. However, corporate leadership may simply be in denial or may deliberately suppress the symptoms of failure in an attempt to ‘kick the can down the road’. Here we look at some Critical Failure Factors (CFFs) that indicate the onset of corporate failure and accompanying metrics that should act as a wake-up call to senior corporate management.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    33 views4 pages

    Identifying Corporate Failure

    Uploaded by

    Patrick Kiragu Mwangi BA, BSc., MA, ACSI
    Businesses collapse for a variety of reasons. More often than not the signs of failure appear relatively early on and may be easy to discern for the perceptive observer. However, corporate leadership may simply be in denial or may deliberately suppress the symptoms of failure in an attempt to ‘kick the can down the road’. Here we look at some Critical Failure Factors (CFFs) that indicate the onset of corporate failure and accompanying metrics that should act as a wake-up call to senior corporate management.

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    © All Rights Reserved
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    of 4

    Identifying corporate Failure

    FINANCIAL PERFORMANCE

    Statement of Comprehensive Income Statement of Financial Position

    Asset Liability Capital


    Revenue failure Cost failure Management Management Management
    failure failure failure

    Critical
    Declining demand
    Competition Inadequate and/ or obsolete Poor risk management - interest rate
    technology and currency Under/ over-capitalisation

    Failure
    Adverse output/ input price High cost structure Project and/ or M&A failure
    movement Poor working capital management Unsustainable credit policies
    Low productivity Creative accounting
    Loss of key market/ customer/ Overtrading Breach of loan covenants
    Inadequate financial controls

    Factors
    contract Inappropriate write-offs Inadequate provisions Discontinuance of dividend
    Ineffective corporate governance Deteriorating relationship with
    Poor marketing effort Significant asset impairments Debt restructuring
    (perception by) the capital markets
    Quality issues and/ or product
    obsolescence

    PROFITABILITY MANAGEMENT EFFICIENCY FINANCIAL STABILITY INVESTOR RETURN


    MANAGEMENT EFFICIENCY

    Key
    Net profit margin Operating profit margin Net debt/ equity ratio ROE
    Debtor days
    ROCE Operating leverage Interest cover EPS
    Creditor days

    ratios
    EBITDA Expense ratio Current ratio Share price
    Inventory turnover period
    EVA return Litany of adverse operational Quick ratio PE ratio and/ or PEG ratio
    ROA
    Asset turnover variances Cash ratio DPS
    Operating cashflow ratio
    Cashflow margin Cash conversion cycle Price-to-book ratio

    Comparison of corporate key ratios with those of:


    previous years
    industry/ sector averages
    industry/ sector leader(s)
    internal company targets
    to establish trend.
    At PK Mwangi Global Consulting we help businesses in financial difficulties identify where they are going wrong
    and help them turn around.
    Using our proprietary tools, we assist them zero in on aspects of the firm that destroy value and lead to the threat
    of business closure.
    We utilise a score-system to identify the root cause(s) of the business stagnation or decline.
    We advise company leadership on how the business can be turned around to deliver profit, maintain optimal
    levels of debt and manage key stakeholder commitments.
    Part of the assessment process involves us optimising selected balance-sheet items, including working capital,
    where the goal is to improve the company's liquidity and the liabilities side of the balance sheet hence removing
    pressure on margins.
    We further identify unprofitable units of the business allowing management to make informed decisions regarding
    their divestment strategies.
    Of course, many businesses that are healthy will also exhibit typical symptoms of companies in distress. We,
    however, seek to uncover the cocktail (combination) of symptoms and an accompanying trend that are real
    signage of a company in distress.
    Altmans z-score also provides us with critical guidance.
    The holistic approach we adopt assesses the major aspects of the business- strategy, operations, finance and
    treasury affairs.
    Give us a call or email us to find out more or to benefit from our services.
    Contacts
    Website:
    www.pkmwangiglobalconsulting.com

    Email:
    info@pkmwangiglobalconsulting.com

    Mobile:
    +44 (0)75 071 37821 - Patrick
    +44 (0)77 038 33075 - Ken

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