- First sign of cash crisis
- Change of supplier or supplier power increasing
- Productivity of delivery problems may arise due to lack of adequate inventories of raw materials
- Operating margin declines as company unable to take advantage of settlement discounts
Increasing debtor days (account receivable turns)
- Poor control over debtors (A/R)
- Customers given extra credit to persuade them to buy
- Customers’ industry in difficulty
- Changing customer base
- Customer bargaining power increasing
- Product returns increasing due to problems with product quality or weakness in customers’ own business
Decreasing inventory turnover
- Production not reduced as demand falls
- Poor production planning or poor inventory control systems
- Change in sales mix
- Problems with product quality leading to return of finished goods or increasing work in progress
- Seasonal demand
Decreasing sales/plant
- Introduction of more modern plant
- Switch in product market focus to more capital-intensive products
- Introduction of new technology (and associated risks)
- Increase in excess capacity
Increasing overhead/sales
- Sales volume decline
- Overhead out of control
- Overhead built up in expectation of future growth which has yet to materialize
Decreasing gross margin
- Industry maturing or in recession
- Products becoming obsolete
- New competitors or increased rivalry from exiting competitors leading to price competition
- Company cutting margin to obtain volume
Decreasing interest coverage
- Inappropriate financial structure
Increasing gearing (leverage)
- Growth out of line with funding
- Poor working capital management
- Acquisitions / investments
Increasing tax ratio
- Poor tax management
- Creative accounting
Declining sales (inflation - adjusted)
- Loss of market share
- Declining industry
- Adverse foreign exchange translations
- Divestment of subsidiary
Increasing raw materials/sales
- Change product mix
- Price pressure in the marketplace
- Increasing scrap levels
Increasing labor/sales
- Lower productivity due to lower demand
- Indirect labor costs out of control
- Strong unions
- Unmotivated/disaffected employees
Decreasing sales per employee
- Lower productivity, overstaffing, or lower technology
- Employing staff ahead of expected demand