The current uncertain outlook in the economy is leading to reluctance within the region’s top 100 SMEs to take on new bank debt.
Operating with a robust balance sheet is clearly recognised as important for companies during these difficult times.
Fifty-one of this year’s entrants are debt free and operate from a cash-positive position compared to 53 companies in 2011.
Furthermore, 45 companies have between no and £10 million-worth of debt compared to 43 last year and two companies have more than £10 million of debt – the same as in 2011.
Interestingly, both of these companies are engaged in equipment hire.
Gearing measures the level of borrowings in a company compared to shareholders’ funds total.
It is important to consider gearing in context when appraising the financial position of a company – as a rule of thumb, a higher level of gearing would typically indicate a higher level of financial risk.
Thirty-two of the 49 companies in a net debt position have gearing of less than 100 per cent which is the same number as last year’s survey.
Furthermore, 17 companies in this year’s survey have gearing greater than 100 per cent compared to 14 companies in 2011.
Within the debt funding market asset-based lending and in particular confidential invoice discounting (“CID”) has been pushed by the banks recently.
This is highlighted by the fact that 66 per cent of those companies in the Top 100 SMEs with a working capital funding requirement operate with a CID facility compared to 60 per cent in the 2011.
The results of this research present a similar picture to 2011.
The region’s top SMEs are not increasing their debt levels and are continuing to operate with low levels of gearing.
Owing to this strong financial position, the most profitable SMEs are ensuring that they are well placed to take advantage of opportunities as they arise.