These warnings, also called going-concern opinions, are published in the annual reports of public companies and refer to their likelihood to remain in business for the next 12 months. Businesses themselves also have to sound the alarm if they think they might not make it for another year.
Although a going-concern notice doesn’t always precede a company’s demise, it can foreshadow a bankruptcy filing or default.
Executives in the spring of 2020 rushed to preserve liquidity, often by slashing jobs, cutting costs, and halting dividends and share repurchases. Some industries—such as e-commerce, technology and food retail—managed to navigate lockdown orders and restrictions, while others, including airlines and oil companies, suffered big losses. Recurring losses, alongside issues such as negative cash flow and inability to pay suppliers, usually trigger going-concern opinions.
Of a total of 5,891 listed companies, 18.8% received such warnings from their auditor in the past year, down from 21.3% in the prior-year period, MyLogIQ said.