How to gauge if a company is broke
Finweek English|5 March 2020
There’s a range of calculations that can show investors whether a company’s financial house is in order or not.
Simon Brown
How to gauge if a company is broke

A company going broke or into business rescue is something we’re seeing more with listed shares. As investors we naturally want to avoid holding shares of companies that hit business rescue because shareholders can expect very little from it, if anything.

The cause of bankruptcy is not just debt, but extends to the liquidity and solvency of a business. A company like Tongaat Hulett is technically bankrupt with its negative net asset value of around R4bn. Simply put: Tongaat’s liabilities exceed its assets by R4bn. But the business rescue practitioners are unlikely to be summoned, whereas other companies in a similar position could find themselves faced with a business rescue process.

What sets Tongaat Hulett apart is its ability to trade itself out of trouble. There are a few simple options companies in this position can consider.

Firstly, they could sell some of their assets. In mid-February Tongaat issued a cautionary announcement stating that it’s looking to sell its starch business. With a R300m profit for this unit for the six months through the end of September 2019, the sale would go a long way to plugging that R4bn hole.

This story is from the 5 March 2020 edition of Finweek English.

Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 8,500+ magazines and newspapers.

This story is from the 5 March 2020 edition of Finweek English.

Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 8,500+ magazines and newspapers.

MORE STORIES FROM FINWEEK ENGLISHView All
THE HEALTH OF SA'S MEDICAL SCHEMES
Finweek English

THE HEALTH OF SA'S MEDICAL SCHEMES

As the Covid-19 pandemic abates, finweek takes a look at the financial performance of some of the largest players.

time-read
7 mins  |
5 November 2021
The effect of Gilbertson's departure
Finweek English

The effect of Gilbertson's departure

With Ntsimbintle Holdings now the major shareholder of Jupiter Mines, it could change SA’s manganese industry.

time-read
3 mins  |
5 November 2021
Making money from music
Finweek English

Making money from music

Why investors are increasingly drawn to the music industry.

time-read
3 mins  |
5 November 2021
Conviction is key
Finweek English

Conviction is key

Sandy Rheeder plays a critical role in Mukuru’s mission to open up financial services to the emerging consumer market in Africa through tailor-made technology solutions and platforms.

time-read
5 mins  |
5 November 2021
The post-pandemic toolkit
Finweek English

The post-pandemic toolkit

How CFOs can use technology to support growth.

time-read
4 mins  |
5 November 2021
Big city living exodus
Finweek English

Big city living exodus

Mini cities like Waterfall City and Steyn City are redefining city-style apartment living.

time-read
3 mins  |
5 November 2021
Big compact, big value
Finweek English

Big compact, big value

Handsome, with a hefty level of standard specification, the roomy Haval Jolion compact crossover is a great value proposition.

time-read
3 mins  |
5 November 2021
On barriers to entry
Finweek English

On barriers to entry

There are various ways in which a company or sector can achieve competitive dominance. They usually make for good investments.

time-read
2 mins  |
5 November 2021
Fear and greed in one index
Finweek English

Fear and greed in one index

To buck the trend, when markets are hot or cold, is a tough thing to do. However, it can deliver solid returns.

time-read
3 mins  |
5 November 2021
Africa's largest data centre facility coming soon
Finweek English

Africa's largest data centre facility coming soon

Vantage Data Centers plans to invest over R15bn for its first African data centre facility in Attacq’s Waterfall City.

time-read
3 mins  |
5 November 2021