assets and liabilities are the two major components of business accounting a business that has more assets compared to liabilities is considered financially sound on the other hand a company whose liabilities grow faster than its assets becomes susceptible to the risk of bankruptcyliabilities can be classified into balance sheet liabilities and contingent liabilities balance sheet liabilities include longterm borrowings trade payables creditors and shortterm loans for working capital requirements on the other hand contingent liabilities are those that may occur in the future and are subject to the outcome of an uncertain eventpending lawsuits tax disputes or patent infringementsthese liabilities are not included in the balance sheet due to their uncertain nature these are mentioned in the footnotes or notes to the financial statements section data for the past five years starting 201314 for companies with marketcap greater than rs 500 crore shows a significant relationship between contingent liabilities and share prices companies whose contingent liabilities as a percentage of total balance sheet liabilities have increased in the past five years have delivered an average point to point returns of 10915 between 6 september 2013 and 7 september 2018 banking and infra sectors top the listindia incs contingent liabilities stood at rs 932 lakh crore in 201718 some 92 of these belong to the banking sector note sectorwise contingent liabilities denoted by bar graphs are as a percentage of their balance sheet liabilitieson the other hand companies whose contingent liabilities as a percentage of total balance sheet liabilities have declined in the past five years have delivered of 6853 bse500 index delivered 1267 returns during the same period companies with falling contingent liabilities have outperformed the market by more than 5times whereas those with rising contingent liabilities have underperformed the markethowever it is imperative to understand the nature of contingent liabilities as such liabilities may help some companies in the long run for example some auto companies offer customers repair and replacements of auto parts within a specified period such liabilities may prove costly for the companies in the short run but they help them build the brand image and boost consumer confidence over a period of time the notes to financial statements clearly mentions the source of such liabilities and investors should look at the quantum and time period of such liabilities while analysing stockslet us look at seven stocks with declining contingent liabilities and with the highest upside potential according to the bloomberg consensus target price1 camlin fine sciences robust growth in highmargin business the company is engaged in the fine chemicals business and provides antioxidants and shelf life extensions aroma ingredients and performance chemical products emkay research is bullish on the stock due to the robust growth in the highmargin blends business and improved operational performance its us business is expected to turnaround in the fourth quarter of 2018192 ncc cost controls better order mix to drive performance this construction company focuses on urban infrastructure projects such as development of residential and commercial complexes