Danger – failing companies ahead

Citation

(2001), "Danger – failing companies ahead", Anti-Corrosion Methods and Materials, Vol. 48 No. 5. https://doi.org/10.1108/acmm.2001.12848eaf.002

Danger – failing companies ahead

Danger – failing companies ahead

Keywords: Plimsoll, Metal treatments

If even only a mild recession hits the UK, then over a quarter of all companies in the metal treatments industry is at serious risk of failure, according to financial analysts, Plimsoll Publishing Ltd.

Analysing the financial health of 1,000 UK metal treatments companies over the last four years, this comprehensive study gives a financial rating for each company as either: strong, good, mediocre, caution or danger.

Plimsoll's financial rating system can be used to predict company failure. A total of 13,798 companies in the UK rated by Plimsoll are currently in receivership, liquidation, or dissolved. Plimsoll rated 80 percent of these companies as "caution" or "danger" up to two years prior to their demise.

This Plimsoll rating system predicts that between 12,000 and 16,000 UK companies could fail in the next 12 months regardless of any deteriorating conditions in the economy. If a recession does hit, Plimsoll expects this figure to double. Several of these companies could be major players.

The analysis found that 429 out of 1,000 companies in the metal treatments industry are at a high risk of failure and 267 companies were even given a "danger" rating. "If the economy does tighten up in the second half of the year, many of these companies already under pressure from nominal business hazards will fail," says Don Turkington, managing director of Plimsoll.

Companies at a high risk of failure do not have the resources to compete, as typically these companies have been loss making or are heavily in debt. Increasingly, they will find their management options restricted. Although the majority of these companies will never reach a final demise, most will be sold or bought out.

If these companies were to turn their fate around, this complex process will take years. Last year 70 companies improved their standing out of the "danger" ranking, yet worryingly they were replaced by another 113 companies. That means 43 more companies have fallen into the "danger" category. Once companies fall into "danger" it can be difficult to move back up. Over 58 percent of the 267 companies are now in their second year of "danger" – a perilous position.

All of this gloom and doom does not mean the industry is in complete demise. For almost as many companies Plimsoll rated as "caution" or "danger", they have also rated in similar numbers as "strong" or "good". A total of 376 "strong" companies in the metal treatments industry know how to sustain a successful business, although this figure is down from last year by nine companies.

Is it left then to worried managers across the UK to ponder over why some companies fail while others succeed? Ale applications of a Plimsoll analysis can help. This analysis is essentially aimed at the non-accountant or "busy manager" and is designed to enter into their thinking, so that it becomes part of their resources for understanding their own or other businesses more fully.

Each of the 1,000 companies has been individually assessed and measured using a method of analysis called Ale Plimsoll Model. This model has a unique predictive power to assess the commercial aptitude of every UK metal treatments company individually.

Readers of this publication can receive a 5 percent discount if mentioning this article on ordering.

Details available from: Plimsoll Publishing Ltd. Tel: +44 (0)1642 257800; Fax: +44 (0)257806; E-mail: plimsoll@dial.pipex.com; Web site: www.plimsoll.co.uk