Businesses collapse for a variety of reasons. More often than not the signs of failure appear relatively early on and may be easy to discern for the perceptive observer. However, corporate leadership may simply be in denial or may deliberately suppress the symptoms of failure in an attempt to ‘kick the can down the road’. Here we look at some Critical Failure Factors (CFFs) that indicate the onset of corporate failure and accompanying metrics that should act as a wake-up call to senior corporate management.

1. Identifying corporate Failure

2. Revenue failure
● Declining demand
● Competition
● Adverse output/ input price
movement
● Loss of key market/ customer/
contract
● Poor marketing effort
● Quality issues and/ or product
obsolescence
PROFITABILITY
● Net profit margin
● ROCE
● EBITDA
● EVA return
● Asset turnover
● Cashflow margin
Cost failure
● High cost structure
● Low productivity
● Inadequate financial controls
● Ineffective corporate governance
MANAGEMENT EFFICIENCY
● Operating profit margin
● Operating leverage
● Expense ratio
● Litany of adverse operational
variances
Asset
Management
failure
● Inadequate and/ or obsolete
technology
● Poor working capital management
● Overtrading
● Inappropriate write-offs
● Significant asset impairments
MANAGEMENT EFFICIENCY
● Debtor days
● Creditor days
● Inventory turnover period
● ROA
● Operating cashflow ratio
Liability
Management
failure
● Poor risk management - interest rate
and currency
● Unsustainable credit policies
● Breach of loan covenants
● Inadequate provisions
● Debt restructuring
FINANCIAL STABILITY
● Net debt/ equity ratio
● Interest cover
● Current ratio
● Quick ratio
● Cash ratio
● Cash conversion cycle
Capital
Management
failure
● Under/ over-capitalisation
● Project and/ or M&A failure
● Creative accounting
● Discontinuance of dividend
● Deteriorating relationship with
(perception by) the capital markets
INVESTOR RETURN
● ROE
● EPS
● Share price
● PE ratio and/ or PEG ratio
● DPS
● Price-to-book ratio
Comparison of corporate key ratios with those of:
► previous years
►industry/ sector averages
► industry/ sector leader(s)
►internal company targets
to establish trend.
Statement of Comprehensive Income Statement of Financial Position
FINANCIAL PERFORMANCE
Key
ratios
Critical
Failure
Factors

3. At PK Mwangi Global Consulting we help businesses in financial difficulties identify where they are going wrong
and help them turn around.
Using our proprietary tools, we assist them zero in on aspects of the firm that destroy value and lead to the threat
of business closure.
We utilise a score-system to identify the root cause(s) of the business’ stagnation or decline.
We advise company leadership on how the business can be turned around to deliver profit, maintain optimal
levels of debt and manage key stakeholder commitments.
Part of the assessment process involves us optimising selected balance-sheet items, including working capital,
where the goal is to improve the company's liquidity and the liabilities side of the balance sheet hence removing
pressure on margins.
We further identify unprofitable units of the business allowing management to make informed decisions regarding
their divestment strategies.
Of course, many businesses that are healthy will also exhibit typical symptoms of companies in distress. We,
however, seek to uncover the cocktail (combination) of symptoms and an accompanying trend that are real
signage of a company in distress.
Altman’s z-score also provides us with critical guidance.
The holistic approach we adopt assesses the major aspects of the business- strategy, operations, finance and
treasury affairs.
Give us a call or email us to find out more or to benefit from our services.

4. Website:
 www.pkmwangiglobalconsulting.com
Email:
 info@pkmwangiglobalconsulting.com
Mobile:
 +44 (0)75 071 37821 - Patrick
 +44 (0)77 038 33075 - Ken
Contacts