The research on 230 companies, who range from loudspeaker manufacturers through audio consultants to distributors and contractors, also revealed that most companies are using their debt in their day-to-day business. 86% of those surveyed had some form of debt last year. Only 17 showed no debt at all. Adding debt takes confidence, not only in the future ability of the company to pay the debt back, but also to generate extra profits to justify the risk.Why would almost 50% of the industry add debt last year? Two key reasons seem to be increasing their formal lending. 1) Companies are financing losses in a bold attempt to keep afloat and stay in the marketplace. For 25 companies borrowing money is a means of staying in business. In fact, these are located and named in the analysis as having taken on more debt last year whilst funding losses.
2) Companies are investing to become more competitive, believing that extra investment in assets will ultimately deliver more profit. Only 25 out of 62 companies or 40% of those adding extra debts increased profits last year.
Obviously too much debt is a bad thing, yet it needn’t be. The research suggests that a typical sound equipment company finances on average 30% of their assets. This statistic, however, hides the reality that almost 28% of companies have a debt level twice this average.Ironically, it also suggests that keeping too much cash can also be dangerous. The 28 cash rich companies located should review whether they are getting the best out of their money. A full copy of Sound Equipment Analysis, February 2001, is available for £305. For more information call +44 (0)1642 257800 or visit www.plimsoll.co.uk
