Question

What could a financial manager look at to determine whether his company is successful or in distress? Give an example of a success or distress in today's business world.

Answer 1

Financial manager will look at following aspects to determine whether his company is successful or in distress-

1.He will look at the the various short term as well as long term liquidity ratios like TIER ratio, interest coverage ratio to look at whether the company is generating enough cash flows to pay off it's periodic repayment liability.

2.He will look for various solvency ratios like debt equity ratio and try to find a trend whether the company is exposed to a high leverage and it's credit risks associated with leverage.

3.He will look for profitability trends and try to find out the profits are whether on a rise or decline and margin at which company is operating at.

4.Any defaults and frauds or any type of non disclosure must be carefully looked at.

In today's world, Companies which are in distress could be those who are highly loaded with debt and cannot payoff it's liabilities Like JC penny or Dhfl.

Comnpany which are in success can be seen from lesser of debt and more of ROCE like Apple, Amazon etc.