If the annual accounts show negative assets or negative liabilities, or if the balance sheet is unbalanced, this indicates an incorrect balance sheet presentation that does not comply with accounting principles.
Negative assets and liabilities are, by definition, impossible. An unbalanced balance sheet, where total assets do not perfectly equal total liabilities, violates the fundamental accounting principle that the balance sheet must always balance.
This incorrect balance sheet information makes a reliable assessment of the financial position impossible. As long as the balance sheet contains incorrect information or is unbalanced, no reliable statements can be made about the solvency, liquidity, or financial continuity of the company.
If a large portion of the debt consists of short-term financing, this could indicate rollover risk. The company relies on regular refinancing, which can lead to liquidity problems in the event of deteriorating market conditions or credit terms(*).
Rollover risk is particularly problematic when there is already a high level of debt. High debt levels and high debt service costs can create default risks, potentially leading to bankruptcy.
(*) Source: Sander Lammers, Friso Scheepstra and Adam Elbourne. Een analyse van Nederlandse bedrijfsschulden. Centraal Planbureau, June 2024.
