Loss has become a constant feature in the telecom world, and Japan offers a chilling example, according to a study by Plimsoll Publishing Ltd.
The report, which covers all of telecom, reveals that 83 percent of Japanese companies use formal debt to run their companies. The study covered the top 250 Japanese telecom companies.
“The companies are dancing with the devil,” said Daniel Turkington, chief executive officer of Plimsoll, adding that the average Japanese company finances around 50 percent of its assets.
Some of the companies cited in the report include Cyber Links Co. Ltd., Ikeno Tsuken Co. Ltd. and Okinawa Seruradenwa KK. Only 86 Japanese companies in the telecom sector do not carry any debt, according to the report.
Looking at the debt structure of most of the companies involved, Plimsoll analyst Robert Riddering said: “These companies are struggling, their debts have increased nearly 27 percent in the last three years and their ability to pay these debts back is under great threat.”
Turkington thinks a lot depends on the general economic atmosphere.
“If the market downturn continues, they have no chances of survival,” he stressed, adding they can pick themselves up once the market looks up.
The report uses what it calls the Plimsoll model, which examines sales-and-profit growth, trading stability, gearing, profitability, working capital and immediate stability. These criteria are analyzed over a four-year period.
The sales-and-profit growth looks at the increases and decreases of percentage of sales growth over a period. The trading stability ratio enables Plimsoll to determine how the company responds to a change in its stability. The profitability ratio looks at if the company is borrowing more and whether its profit curve is dropping. Bucking traditional models, its working-capital model looks at how its long-term debt stacks up against its current account. Under gearing, it compares how much of the company is owned by shareholders with what the company borrows. Under immediate liquidity, it looks at the amount of the real cover of the company’s creditors. That guards against unsecured debt.
“The analysis exposes individual company financial performance and will enable U.S. companies to identify best trading partners and potential acquisitions in the Japanese market,” concluded Riddering.
