When company financial statements include a "going concern qualification"

June 6, 2008

A digital technology firm I invested in put out a press release saying that its financial statements include a "going concern qualification." What does that mean?

A digital technology firm I invested in put out a press release saying that its financial statements include a "going concern qualification." What does that mean?

It means the independent auditors who reviewed the firm's financial statements aren't confident that the company will be able to continue meeting its financial obligations in the coming months. Negative cash flow, defaulting on debts, repeated operating losses, and the threat of a lawsuit are just some of the red flags that may cause a financially sound company-called a going concern-to begin looking shaky in auditors' eyes. Determining a company's viability isn't an exact science, but you'd be wise to take the news seriously and find out as much as you can about what worried the auditors so you can make an informed decision about whether to sell the stock.