There are 12 key finance company "distress signals" to watch out for

A A written undertaking offered by an investment company to the Securities Commission, usually because of non-compliance with securities law or some other areas of concern. The undertaking specifies the steps the company agrees to take to remedy the breach. “Enforceable” means the undertaking is enforceable in the courts.

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Distress signals

There are 12 key finance company "distress signals" to watch out for.

If a company in which you're thinking of investing has sent out one or more of the following signals, be extremely cautious about investing in it. Some of these distress signals may apply only to companies listed on the New Zealand or Australian stock exchange.

  • Has the company's credit rating been downgraded recently?
  • Does the company have any "enforceable undertakings"A or other compliance issues with the New Zealand Securities or the Australian Securities and Investment Commission?
  • Does the company have any issues with the stock exchange (NZX or ASX) on either its listed or unlisted board?
  • Has the company's share price fallen recently?
  • Does the company have published bad debts? And has its percentage of bad debts been rising?
  • Does the company have significant lending to related parties (such as companies or individuals able to control or significantly influence the finance company, or who are otherwise connected with the finance company?)
  • Does the company invest in any unusual countries?
  • Do the company's published accounts show a good "liquidity profile" - for example, does it have enough cash on hand or overdraft arrangements with banks to meet its short-term cash-flow needs? Has it been able to get overdraft or standby facilities with a bank?
  • Has the company recently increased its advertising (television, newspaper or radio)?
  • Has the company been selling loans to competitors?
  • Has the company borrowed money to meet interest payments?
  • Have senior staff been leaving the company?

A simple internet search is usually enough to see whether a company has met one or more of the "distress signals". For more information about where to look, see Do your homework.

If you are concerned about your finance-company investment, it is important that you do not panic - see your financial adviser, accountant or lawyer.

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Important

Like you, we can't predict the future - which means we can't guarantee the performance of any company or investment. Consumer NZ does not endorse any specific company, scheme or investment. ConsumerSaver is a good starting point - but, before you commit, we strongly suggest you seek independent financial advice. See our full disclaimer.