Hindsight is a wonderful thing. With it anyone can appear to have insight into the complexities of markets, of trends that have emerged and of issues that have shaped the world. The much more rewarding and difficult task is seeing the warning signs and acting on them before the trouble strikes.
Despite volumes being written about the Global Financial Crisis and the warning signs that were present prior to the crash, why is it that we seem to have stopped looking for these during this period of recovery?
In a new report by CPA Australia, we found that nearly one third of all companies listed on the Australian Stock Exchange, including more than half in the bottom 500, were facing serious financial uncertainty in 2013. This is clearly an early warning sign and one that should be heeded not only by Australian businesses but by business around the world.
Our research, which analysed over 15,000 annual reports released by Australian publicly listed companies between 2005 to 2013, showed that there has been a steady increase in going concern warnings among the middle and bottom listed companies since 2011. Even more alarming was the finding that more going concern warnings were issued in 2013 than during the global financial crisis. This fact alone should be enough to make businesses stop and think.
Going concern 'emphasis of matter paragraphs' are used by independent auditors to flag significant uncertainty in an individual company's ability to continue in business for the foreseeable future. They are not to be taken lightly.
Our extraordinary findings are a sobering reminder of the fragility of the Australian economy and the challenges many businesses face, not just in Australia but around the world.
For some time here in Australia we have been talking about the potential impacts of an economic slow-down in China, the strength of the Australian dollar and the effects of the tapering mining boom on our economy.
What this report shows is that these factors are already being felt across the Australian economy and are putting almost a third of companies at risk of financial catastrophe.
It really begs the question about how the Australian and other, possibly more fragile economies would be placed were we to face another major shock now?
What these early warning signs are showing us is quite simply that Australian businesses have not done enough to fill the void that the end of the mining boom is leaving nor have we addressed the global competitiveness challenges that lay ahead for our nation.
With nearly a third of companies now having a cloud over them in terms of their financial future, the signs are there - we just need to heed the warnings.
Alex Malley is chief executive of CPA AustraliaSuggest a correction