Notore reported another loss for the third quarter (Q3), 2020 period ending in June, which further pushed retained earnings deeper into the negative territory at –N33.9 billion.
A retained earnings deficit, also called an accumulated deficit, happens when cumulative losses are greater than cumulative profits causing the account to have a negative or debit balance.
In the nine months’ period the firm reported a loss of N8.09 billion as cost of sales (N16.2 billion) and finance costs (N11.88 billion) completely swallowed revenues.
Notore sold N17.4 billion worth of products in the period, with Urea and other chemicals making up N17.24 billion or 99 percent of the total amount.
Ammonia and NOK sales made up the rest.
Impact of Accumulated Deficit on Notore
Running an accumulated deficit can have several effects. One guaranteed result is that the total equity is smaller.
Notore’s total equity fell to N61.6 billion in the latest 2020 period from N69.5 billion a year ago.
Shareholders may not take this well.
Anyone looking to invest in Notore or loan the company money will want to know why they have an accumulated deficit.
Was it one bad year? Have they been running a deficit for several years? If it is a struggling startup, it might be understandable.
However, it is more alarming when an established company like Notore that’s had years to accumulate earnings shows a retained earnings deficit.
The accumulated retains earnings deficit is a sign of serious financial problems and potential bankruptcy.