KEY POINTS:
Most Australian companies are in good financial shape to withstand further market shocks although a worrying number are still vulnerable, an industry survey has found.
Some 56 per cent of listed Australians companies are financially healthy and 61 per cent of companies had improved their health in 2007, the inaugural 333 Australian Corporate Health Index found.
But the report also classified 20 per cent of companies as unhealthy and another 11 per cent were identified as being in declining health.
The survey gathered the past eight years' financial data available on more than 200 listed companies, using a bankruptcy prediction model to measure their fiscal health.
The study compared the companies' capital, assets, retained earnings, earnings before interest and tax, market value of equity, and book value of debt and sales.
The 56 per cent of companies with a health tick on 2007 data was the highest recorded and the 2007 unhealthy figure of 20 per was the second lowest over the period of the study.
It also found the energy sector had the greatest percentage of companies declining in health while consumer cyclables was the sector with the greatest percentage in improving health.
Martyn Strickland, managing director at 333 Performance Management, said increasing gearing was reducing corporate health and resilience.
Old guard companies which had been in the ASX for 10 years or more went against this trend and were in a better position to withstand market shocks, he said.
"When you look at corporate health over the last 10 years, the disappointing thing is that despite the good times, on average Australian companies have not improved their key drivers of good corporate health," he said in a statement.
"Many Australian corporates have been riding the recent equity boom without keeping an eye on their overall corporate health and resilience to an external shock.
"It will be these companies who now face the biggest risk of failure if the downturn continues."
- AAP
