Company risk profiles show economy still on edge
A risk profile review of nearly 20,000 New Zealand firms by credit reporting agency Dun&Bradstreet shows a mixed picture as New Zealand emerges from recession.
A risk profile review of nearly 20,000 New Zealand firms by credit reporting agency Dun&Bradstreet shows a mixed picture as New Zealand emerges from recession.
The agency said today that it downgraded the ratings of nearly 9000 firms in the first quarter of this year -- meaning they were "now more likely to experience financial distress over the coming year despite the economic recovery".
But 10,500 firms received a rating upgrade, putting them in a stronger position to take advantage of the opportunities a recovery presented.
"These findings demonstrate that the business environment is currently in a state of flux, with some firms well positioned to take advantage of the recovery and others struggling to manage its demands," Dun&Bradstreet general manager John Scott said.
"Cash flow and liquidity are vitally important during a recovery as firms require funds to take on new staff, increase their inventories and invest in their business to meet growing demand. In an environment where access to credit remains difficult for many firms, cash flow becomes even more critical."
More than 7000 firms up to 20 years old had their risk rating downgraded in the March quarter and more than 6000 firms in this group had their payment rating downgraded. Conversely, close to 9000 firms in this age bracket had their risk rating upgraded.
Smaller and younger firms were often less able to withstand cash flow pressures -- often caused by delayed payments -- than their big business counterparts and accordingly they were more likely to fail even though they made sales and book revenue.
Dun&Bradstreet data showed that more than 80 percent of business failures were related to cash flow pressures rather than poor sales.
Mr Scott said many businesses underestimated the challenges an economic recovery presents.
"Although the past couple of years have been difficult, government stimulus measures and low interest rates encouraged households to spend and businesses to invest. However, this silver lining is disappearing - interest rates are expected to begin rising in the near future and the Government is winding back the stimulus," he said.
"In addition, credit remains tight and the risk aversion practices that financial institutions fine tuned during the crisis look set to continue throughout 2010."
NZPA
Tue, 18 May 2010
Tue, 18 May 2010
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Company risk profiles show economy still on edge
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