Going Concern Assessment and Distress Analysis

The concept of going concern—the assumption that a business will continue its operations for the foreseeable future—is fundamental to financial reporting and organizational stability. Assessing a company’s ability to maintain this status is a critical aspect of financial management, as it ensures stakeholders have confidence in the entity’s viability. This article explores the application of financial statements in evaluating going concern status and conducting distress analysis, providing tools and frameworks to identify early warning signs of financial instability.

Financial statements play a pivotal role in going concern assessments and distress analysis. The balance sheet, income statement, and cash flow statement offer a detailed view of an organization’s financial position, operational performance, and liquidity. By examining these documents, businesses can detect indicators of distress, such as recurring losses, negative cash flows, or deteriorating solvency metrics, and take corrective actions before challenges escalate.

This article discusses the critical role of financial ratios, such as the current, debt-to-equity, and interest coverage ratios, in assessing a company’s financial health and ability to meet short- and long-term obligations. It also introduces techniques such as trend analysis and benchmarking to evaluate performance over time and relative to industry peers.