# Going concern warning

> A disclosure, by management or the auditor, that there is substantial doubt about a company's ability to keep operating for the next year.

Source: https://www.quantisnow.com/glossary/going-concern
Topic: Glossary / Earnings and fundamentals
Also known as: going concern doubt, going concern opinion, substantial doubt about ability to continue as a going concern
Last updated: 2026-10-27

A going concern warning is a disclosure that there is substantial doubt about a company's ability to continue operating and meet its obligations as they come due. Under US GAAP (ASC 205-40), management must evaluate this each reporting period for the one-year period after the financial statements are issued, and the auditor adds an explanatory paragraph to its report on annual statements when it concludes substantial doubt exists.

## How it works

Common triggers include recurring losses, negative operating cash flow, low cash relative to burn, upcoming debt maturities, covenant breaches or loss of a key customer or financing source.

- **Management disclosure:** appears in the notes to the financial statements in a [10-K](https://www.quantisnow.com/glossary/form-10-k) or 10-Q, along with management's plans (raising capital, cutting costs, selling assets).
- **Alleviated doubt:** if management's plans are probable of resolving the issue, the company discloses the conditions and plans but states that substantial doubt has been alleviated.
- **Auditor paragraph:** in the annual audit report, flagged under a heading about the company's ability to continue as a going concern.

## Why it matters for traders

A going concern warning tells you the company needs money soon. For small-caps and biotechs, that usually means [dilution](https://www.quantisnow.com/glossary/dilution) through an [ATM offering](https://www.quantisnow.com/glossary/at-the-market-offering), a registered direct or a PIPE, often at a discount. It can also trigger debt covenant defaults, hurt relationships with suppliers and customers, and, at the extreme, precede a [Chapter 11](https://www.quantisnow.com/glossary/chapter-11) filing. The warning is frequently already expected for cash-burning companies, so the reaction depends on how much cash is left and whether financing is lined up.

## Example

Northwind Therapeutics (ticker NWTX) ends the year with $30 million in cash and burns about $12 million per quarter. That covers roughly 2.5 quarters, well short of the 12 months after its 10-K is issued. The 10-K includes a going concern paragraph, and NWTX announces a $25 million registered direct offering the following week.

## FAQ

### Does a going concern warning mean bankruptcy?

No. Many companies raise money and continue operating. It means there is substantial doubt over the next year without new financing or other action.

### Where do I find a going concern warning?

In the auditor's report and financial statement notes of the 10-K, and in the notes of a 10-Q when management identifies the doubt.

## Related terms

- [Free cash flow](https://www.quantisnow.com/glossary/free-cash-flow.md): The cash a company generates from operations after capital expenditures, available for debt repayment, dividends, buybacks or acquisitions.
- [Chapter 11 bankruptcy](https://www.quantisnow.com/glossary/chapter-11.md): A US bankruptcy process that lets a company keep operating while it restructures its debts under court supervision through a plan of reorganization.
- [Form 10-K](https://www.quantisnow.com/glossary/form-10-k.md): The audited annual report US public companies file with the SEC, covering the business, risk factors, MD&A and full financial statements.
- [Dilution](https://www.quantisnow.com/glossary/dilution.md): The reduction in existing shareholders' ownership percentage and per-share claims on earnings when a company issues new shares.
- [At-the-market (ATM) offering](https://www.quantisnow.com/glossary/at-the-market-offering.md): A way for a public company to sell new shares gradually into the open market at prevailing prices through a sales agent, off a shelf registration.
- [Delisting](https://www.quantisnow.com/glossary/delisting.md): The removal of a company's stock from a national exchange, either voluntarily or because it failed listing standards, often leaving it to trade OTC.

## On Quantisnow

- [Form 10-K vs 10-Q](https://www.quantisnow.com/guides/form-10-k-vs-10-q)
- [Shelf offerings and dilution](https://www.quantisnow.com/guides/shelf-offerings-and-dilution)
- [SEC Form 10-K annual reports](https://www.quantisnow.com/categories/10-k)
- [Live feed: Financials](https://www.quantisnow.com/news/financials)