HOW to tell good companies from bad? Watch the courts.

 

Data compiled by D&B Australasia shows that companies that have been taken to court are nearly eight times more likely to fail than those that haven't. 

 

The figures are also a good gauge when applied to private companies where information is typically more difficult to obtain.

 

D&B's Corporate Health Watch series also reveals that court actions have been producing bigger payouts.

 

According to D&B, the median value of court actions has gone from $3300 in 2003 to $4000 two years later.

 

At the same time, more companies were going into external administration, from 6600 in 2003 to 7300 last year.

 

D&B Australasia could not give any reason for the median-value increase of money flowing from court action, but it said that the figures pointed to greater pressure on cash flows and the greater risk of failure.

 

D&B chief executive Christine Christian said that, while profit was one gauge of health and risks, court action was another early warning signal.  "Unlike publication of a company's annual accounts, corporate legal action can occur at any time throughout the year, and the information is quickly available," Ms Christian said.  "Access to this analysis can be critical when determining whether to do business with, or become a supplier, to another company."