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CNinsight100: Top construction companies solid on debt

The CNinsight 100 companies are generally able to cover short-term debts with the current assets they hold, according to research by CNinsight.

CNinsight calculated the liquidity, or quick, ratios for the 83 companies that have filed accounts for a 2010 or 2011 year-end to give an at-a-glance indication of their ability to pay short-term debt (debt to be repaid within a year).

Although it is not an indicator of a company’s general financial health, it illustrates whether or not a company could pay off due debt if it was immediately called in.

A liquidity ratio of 1.0 indicates that current assets can at least cover current liabilities, excluding stocks or inventories. The higher the ratio the better the immediate ability to cover debt.

Credit-checking agency Equifax recommends that the construction industry should be typically working within a liquidity ratio of 0.6 and 1.0.

But according to our research, most companies in the CNinsight 100 are above this, with six companies hitting ratios of 2.0 or above, indicating a sound ability to pay off debt, and little debt compared to the assets they hold.

Highest and lowest liquidity rates

Highest and lowest liquidity rates

The average liquidity ratio across this year’s CNinsight 100 is 1.3 per cent, with a quarter operating at higher than this.

Just two companies - Carey and Ogilvie - have a liquidity ratio of below the recommended level.

But these companies, along with others lower down the table, have significant stock among their current assets, so taking this into account, their ratios increase to above 1.0.

At the other end of the scale, Robertson has the highest ratio of 6.1, with current liabilities of £7.9 million against assets worth almost 10 times more.

Insolvencies risng

Lending to construction companies has seen dramatic declines over the course of 2011, which industry commentators suggest can be atributed to both a lack of appetite for lending from companies and a lack of confidence to invest.

Statistics from the British Bankers Association show steep downturns in lending - a drop of £349m in July and a huge decline of £614m in the previous month.

This is of little surprise considering the news last week that Office for National Statistics figures for construction new orders show they are at their lowest level in 31 years, falling by 23 per cent last quarter compared with a year ago.

These worrying statistics from the ONS and BBA are against a backdrop of growing levels of insolvencies.

Pricewater- houseCooper’s most recent construction insolvencies report highlights worrying growth over the past year.

Insolvencies totalled almost 600 in the second quarter of this year, a drop from the 710 seen the previous quarter, but 5 per cent up on 2010.

Insolvency Services reports similar numbers and trends in relation to voluntary liquidations, with the number of these increasing by 7.9 per cent when comparing the second quarters of 2010 against this year.

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