Third of top firms getting ever deeper into debt

Plimsoll Publishing looked at how high levels of debt are affecting the financial health of the top 1502 security companies. It found that 484 of them are in more debt now than at any time since 2002.

Of those 484 companies, 196 have debts that are already affecting their business and their competitiveness.

David Pattison, head of research at Plimsoll, said "We are always surprised how no one at these companies seems to realise their debts are rising and the effect it's having on the overall financial strength of the company. Unfortunately it's not something they tend to measure until it's too late. Our analysis spots these problems earlier".

Warning signs are often present up to two years before the debt problem becomes serious, he said. Warning signs are: Companies tend to swap short term debt for long term debt. This has little effect on their overall financial strength. It is often a sign that the banks are concerned and are looking for more security. The analysis names 55 such companies.

As the debt increases the company's profitability starts to erode. Interest payments can in extreme cases, absorb all the profits. For 15 companies, high interest payments alone have already tipped them into loss.

As this starts to take effect the company will push for extra growth. This puts further pressure on profitability, requiring extra working capital which encourages even more debt. Of those 484 companies with high debts, growth was good for 44 of them. "However, if these debts are allowed to go unchecked, any disturbance to the business could end in disaster. The loss of a key client, a large bad debt and even increases in interest rates could be the straw that breaks the camel's back."