David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

(Updated )

How the mighty have fallen.

Toshiba Corp., a company that was worth more than Apple Inc. as recently as 2004, could soon be effectively worthless. The company expects shareholder equity to be a negative 150 billion yen ($1.3 billion) this fiscal year and will book a 712.5 billion yen goodwill writedown in its nuclear power business. Chairman Shigenori Shiga will also step down, Toshiba said in a statement Tuesday.

Giant Killer
As recently as 2004, Toshiba's market capitalization was bigger than Apple's
Source: Bloomberg

Shares in the maker of computer chips, elevators, laptops, televisions, X-ray scanners and nuclear power stations had earlier tumbled as much as 9.45 percent after the Nikkei Asian Review reported, without saying where it got the information, that Toshiba had planned to issue a "going concern" notice alongside its third-quarter results. A full set of numbers isn't expected for another month because Toshiba needs time to complete an auditor review.

Such going concern notices are rare at large companies, since they're essentially a warning from the accountants that the company may go bankrupt and have its assets liquidated in a fire sale. Toshiba said Tuesday that selling a majority stake in its chip business was one option to bolster its finances.

Big Problem
Toshiba's liabilities are equivalent to two years' worth of Japanese bankruptcies
Source: Teikoku Databank

An outright collapse would be a disaster for corporate Japan. Toshiba's 4.13 trillion yen in liabilities represents a bigger sum than all bankruptcies nationwide since the start of 2015, according to Teikoku Databank. Lucky then that while having negative shareholder equity is a bad look, it isn't necessarily a sign of impending doom.

Under Water
Not all companies with more liabilities than assets face impending doom
Source: Bloomberg
Note: Based on latest filings of companies with at least $10 billion in annual sales.

A list of companies with more than $10 billion in revenue whose liabilities exceed their assets isn't exactly a prime portfolio, but it includes traditional blue chips such as McDonald's Corp., Sears Holdings Corp. and Air France-KLM. Shares in Philip Morris International Inc. have risen 18 percent since it last reported a cent of balance-sheet equity to its name back in 2012.

Though such companies are, under one definition of the term, insolvent, there's no risk administrators will be called in so long as they can keep paying their bills and trade their way out of trouble.

If analysts are right about Toshiba, that shouldn't be a worry. Interest cover -- operating profit divided by interest payments, a good quick measure of a firm's ability to satisfy its creditors -- was 19 times in the September quarter, the best result in at least a decade. The company is forecasting a 390 billion yen net loss in the year ending March but analysts expect pretax income of over 200 billion yen in each of the two succeeding years. It takes some pretty odd accounting for a company making pretax profits to go bankrupt.

Cashing Out
Toshiba's income statement looks to be recovering. Its cash flows are in a sorrier state
Source: Bloomberg

When you're Toshiba, though, accounting is precisely the problem. Since the company's president and his two predecessors quit in 2015 after investigators found Toshiba had inflated earnings by $1.2 billion over six years, the firm has struggled to get its house in order. The writedown of its U.S. nuclear business is larger than the $5.4 billion it paid for Westinghouse in 2006. And Toshiba's income statements have recently provided a rosier picture of the company than its more reliable cash flow ones: In both of the previous two fiscal quarters, Toshiba posted positive Ebitda figures while operating cash flows were negative.

Toshiba may well survive this crisis to fight another day. But its margin for error is narrowing.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
David Fickling in Sydney at

To contact the editor responsible for this story:
Katrina Nicholas at