In all the dross number-crunching and ratio analysis done while analysing the financial performance of a company, one key aspect is often overlooked — that little entry in the books called contingent liabilities, which actually warrants a little more than just the cursory glance thrown in its direction. In fact, the quantum of contingent liabilities has grown in recent years as an increasing number of companies have taken to obfuscating their financial obligations under this accounting term. To put things in perspective, the cumulative contingent liability of the BSE 200 companies (excluding PSUs, banks and financials) has gone up from ₹178,789 crore in FY11 to ₹256,978 crore in FY14, an increase of 44% over a three-year period.
Cloud of uncertainty
Investors need to be cautious as an increasing number of companies are reporting higher contingent liabilities
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