Reading French Company Accounts to Assess Credit Risk

Obtaining a French company's annual accounts

French law makes the annual accounts of most companies a matter of public record, and this is the starting point for any credit assessment. Under Article L232-21 of the Commercial Code, limited-liability companies (the SARL) and companies limited by shares must file their comptes annuels — the balance sheet, income statement and notes — with the registry of the commercial court in whose district their registered office sits, within one month of the shareholders approving them (two months where filing is electronic). That deposit is what allows a supplier, a lender or a prospective partner to inspect the accounts of a French counterparty.

In practice you obtain the filed french company accounts either at the registry itself or, more conveniently, through the online services of Infogreffe, and now in part through the Registre national des entreprises hosted by the INPI. The cost is modest. A single set of accounts gives you the balance sheet and, subject to the confidentiality options below, the income statement and the explanatory notes — enough to form a view on solvency, financial equilibrium and profitability before you commit to a large order or an open line of credit.

Not every company files, and not every filed set is complete. Smaller companies may lawfully restrict what the public sees, and some companies simply default on the obligation. Both situations tell you something. Before reading the numbers, always confirm which accounting years have actually been filed and whether the company has used a confidentiality option — the gaps in the record are part of the risk picture, a theme we return to when we look at how to check a French company before you sell.

When small companies can keep their accounts confidential

The public nature of french company accounts is qualified for the smallest businesses. Under Article L232-25 of the Commercial Code, a micro-enterprise may ask the registry, when it files, that its accounts not be made public at all; a small company may ask that its income statement in particular be withheld. The company still files with the registry, so it complies with its legal duty, but the document is shielded from third parties who request it. This option has become common, which narrows the information a creditor can rely on.

The size thresholds matter because they tell you what to expect. A micro-enterprise is broadly one that does not exceed two of three ceilings — a very low balance-sheet total, a low net turnover and a headcount of around ten. Small companies that can shelter their income statement sit at a higher tier of thresholds. If your prospective customer is a micro-enterprise that has elected full confidentiality, you may find only limited data on the register and should compensate with other checks: trade references, credit-agency scores, and a direct request for the latest balance sheet.

Because the filed record can be incomplete, French practice recognises a parallel route: in the course of an important negotiation you may simply request the counterparty's most recent balance sheet, or make disclosure of it a condition of the deal. A company confident in its figures rarely refuses. A refusal, like a confidentiality election combined with a thin public file, is a signal to price the risk more cautiously or to insist on security before you supply.

Reading the balance sheet: financial equilibrium and cash

The balance sheet (bilan) is a snapshot of what the company owns and owes at the close of its financial year. Read functionally, it resolves into a few large masses whose relationship reveals the company's financial equilibrium. On the assets side sit fixed assets (property, equipment, holdings) and the operating cycle (stock and receivables); on the liabilities side sit the stable resources (equity and long-term debt) and the short-term liabilities. The reading question is whether the stable resources are enough to finance the durable needs of the business.

That question is answered through three linked figures. Net working capital — the fonds de roulement net global (FRNG) — is the surplus of stable resources over fixed assets: the cushion of long-term funding left over to finance day-to-day operations. The working-capital requirement (besoin en fonds de roulement, or BFR) is what the operating cycle ties up: stock plus operating receivables, less operating payables. Net cash (trésorerie nette) is the residual: FRNG minus BFR. This is the identity that structures any reading of french company accounts — working capital finances the working-capital requirement, and cash is what is left.

A durably negative net cash position is the classic warning: the company is relying on short-term bank finance to run its ordinary activity, which leaves it exposed if a bank withdraws support. But the figures must be read in context. In sectors such as large-scale retail, the working-capital requirement is structurally negative because customers pay before suppliers are paid, so a low or even negative working capital is not itself alarming. Read the balance sheet in percentages of the total and, where possible, across several years — trends matter as much as the position on any one closing date.

Reading the income statement: management balances and self-financing

Where the balance sheet shows structure, the income statement (compte de résultat) shows performance over the year. The practical way to read it is to express the main lines as a percentage of turnover, ideally over the last three years, and to track how each line has moved from one year to the next. This turns a mass of figures into a story: is turnover growing or falling, are personnel costs eating into value added, are financial charges rising faster than the business itself?

French analysis then breaks the result into soldes intermédiaires de gestion (SIG) — a cascade of intermediate management balances. The commercial margin (for a trading business) or production (for an industrial one) leads to value added, then to the gross operating surplus (EBE), then to operating profit, then to current profit before and after tax. Each balance isolates one layer of performance: value added measures how well the company turns its labour and equipment into wealth, the EBE measures the profitability of operations before financing, and current profit strips out exceptional items to show sustainable earnings.

The single most useful figure for a creditor is self-financing capacity — the capacité d'autofinancement (CAF). The CAF is the cash the company's ordinary operations generate that it could use, absent dividends, to repay debt and to invest. It is a better guide than net profit alone to whether a business can service its borrowings, and comparing the CAF against total debt gives a rough sense of how many years of self-financing it would take to clear the debt. A weak or falling CAF alongside rising financial charges is a reliable early sign of strain in french company accounts.

Key ratios and the warning signs to look for

Ratios turn the raw accounts into comparable indicators, but they must be handled with care. A ratio is a quotient, so it can move because the numerator changes, because the denominator changes, or because both move together. The alarming character of any single ratio that has gone into the red must be assessed against the company's sector and against the direction of its other ratios. Read one ratio in isolation and you will draw the wrong conclusion; read a coherent set across several years and the picture stabilises.

One structural ratio deserves particular weight: financial independence. When equity represents less than about 20% of the balance-sheet total, or when long- and medium-term debt exceeds equity, the company is thinly capitalised and heavily reliant on borrowing — a fragile base if trading turns down. Combine that with an insufficient working capital and tight cash, and the balance sheet is flashing amber. Negative equity, where accumulated losses have exceeded the capital and reserves, is the strongest single balance-sheet warning of all.

• Falling turnover, or weak and shrinking value added
• Personnel costs rising faster than value added (falling productivity)
• Financial charges climbing abnormally against value added and turnover
• Repeated net losses and a CAF too small to cover investment
• Insufficient working capital and tight or negative cash
• Equity below about 20% of the balance-sheet total, or debt exceeding equity
• Over-generous dividend distributions draining the company

The income statement adds its own alerts: a low or declining value added, a growing customer or supplier credit period, a slowing stock rotation, and a swelling of provisions and impairments. None of these is decisive on its own — a large delivery received just before the year-end can inflate stock and payables and distort the ratios that use them. But a cluster of these signs, worsening year on year, is the pattern that separates a stretched-but-viable business from one heading toward default. This is the analysis you should run before setting a credit limit, as we discuss in how to check a French company before you sell.

The statutory alert when equity falls below half the share capital

French company law contains a built-in distress signal that a creditor can read straight off the record. When the approval of an SARL's accounts shows that its equity has fallen below half of its share capital, Article L223-42 of the Commercial Code obliges the managers to convene the shareholders within a set period to decide whether to dissolve the company early or to continue it. An equivalent rule applies to companies limited by shares. The decision must then be published, so a third party can learn of it through the registry.

For a creditor this is valuable because it converts an accounting fact into a public, dated event. The publicity that follows an equity-below-half-capital situation is, in the words often used, of poor omen: it tells you the company has burned through more than half of its capital in accumulated losses and that its own shareholders have had to confront the question of survival. If the shareholders resolve to continue, the company is usually given time to restore its equity above the threshold; failure to do so within the statutory window can itself expose the company to dissolution on a third party's application.

The alert is a floor, not a ceiling, on your caution. Equity can be positive yet still below half the capital, and a company can be solvent on paper yet be put into a recovery procedure where its balance sheet is only positive thanks to the property it owns. The lesson is that the equity-to-capital ratio is a trigger to look harder — at cash, at the CAF, at the trend — not a single number to rely on in isolation.

The limits of filed accounts: time lag and confidentiality

Filed accounts are backward-looking, and the lag is significant. Company accounts are typically not available at the registry until around seven months after the close of the financial year, and often later. By the time you read them, the company's position may have moved substantially — a lost contract, a bad debt of its own, or a bank withdrawing a facility will not yet show. For an important contract it is therefore prudent to ask the counterparty for its latest balance sheet, or to commission an audit, rather than to rely solely on the last filed set of french company accounts.

Confidentiality options and outright non-filing are the second limit. A micro-enterprise may have withheld its accounts entirely, and a small company its income statement, so the public file may show only part of the picture. Where the figures are simply absent, be vigilant: a company that has not filed may be masking its difficulties. Business-information agencies treat persistent non-filing as a negative and mark the company's score down accordingly, and the courts can, on the application of any interested party, order a defaulting manager to file under penalty.

The final limit is that a balance sheet is a snapshot at the closing date, which may not reflect the company's average position through the year. Operations occurring just before or just after the close — a large delivery, the collection of a receivable, the payment of a supplier — can distort the structure and the ratios that depend on it. This is why French practice insists on reading several years together and on treating any single-year figure as indicative rather than conclusive.

Turning the figures into a credit decision

The purpose of reading french company accounts is to decide how much credit to extend and on what security. The analysis feeds three concrete choices: the credit limit you will grant, the payment terms you will accept, and the protection you will require. A strong balance sheet with positive net cash, a healthy CAF and stable equity may justify open account terms; a thin, over-borrowed structure with a weak CAF calls for shorter terms, a lower limit, or security up front.

Where the accounts raise doubt, the toolkit of protective measures is well developed. A retention-of-title clause keeps ownership of the goods until you are paid; an advance payment or a deposit shifts risk to the buyer; a personal or bank guarantee brings in a second pocket; and credit insurance or factoring transfers part of the risk to a third party. The weaker the accounts, the higher up this ladder you should climb before you supply. Reading the figures is only useful if it changes what you do.

Frequently asked questions about reading French company accounts

How do I read a French company's accounts?

Start with the balance sheet to assess structure — working capital (FRNG), the working-capital requirement (BFR) and net cash — then read the income statement for profitability and calculate the self-financing capacity (CAF). Read the figures as percentages and across several years, and compare them against the company's sector rather than in isolation.

Where do I get the accounts?

SARLs and companies limited by shares must file their annual accounts with the commercial court registry each year (Article L232-21 of the Commercial Code). You can order the filed accounts from the registry or online through Infogreffe, and much of the information is also accessible through the Registre national des entreprises.

What are the warning signs in a balance sheet?

The main signals are durably negative net cash (reliance on short-term bank finance), equity below about 20% of the balance-sheet total, debt exceeding equity, and above all negative equity. A published notice that equity has fallen below half the share capital under Article L223-42 is a strong red flag.

What if a company has not filed its accounts?

Non-filing carries a presumption of poor financial health, and business-information agencies mark such companies down. Any interested party can ask the president of the commercial court to order a defaulting manager to file under penalty. Treat a missing file as a reason to seek security or advance payment rather than as neutral.

What does negative equity mean?

Negative equity means accumulated losses have exceeded the company's capital and reserves, so on paper the company owes more than it owns. It is one of the strongest single balance-sheet warnings, though it must be read alongside cash, the CAF and the trend, since a company can remain trading while restructuring its capital.

Can a small French company keep its accounts secret?

Partly. Under Article L232-25 of the Commercial Code a micro-enterprise can ask that its accounts not be made public at all, and a small company can withhold its income statement. The company still files with the registry, but the document is shielded from third parties, so the public record may be incomplete.

How current are filed accounts?

Not very. Filed accounts are usually available only around seven months after the year-end, so they describe a position that may already have changed. For an important contract, ask the counterparty for its latest balance sheet or commission an audit rather than relying only on the last filed set.

How our French lawyers help with reading French company accounts

Petroff Avocats helps foreign businesses translate a French counterparty's accounts into a workable credit decision — obtaining and interpreting the filed comptes annuels, reading the balance sheet and the CAF for warning signs, and checking the registry for alerts such as an equity-below-half-capital notice or an unfiled file. We act on both sides of the relationship: for suppliers, we structure protective terms (retention of title, guarantees, advance payment) proportionate to the risk the accounts reveal; for companies whose accounts are being scrutinised, we advise on filing obligations, confidentiality options and how to present a sound financial position to trading partners.

This article is for general information only. It does not constitute legal advice and cannot replace an analysis of your specific situation, which depends on the counterparty, the transaction and the up-to-date financial position. Reading company accounts for risk involves accounting and legal judgement that should be exercised case by case. Contact our French lawyers for advice on your situation.