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

Answer:

There are several ways through which a manager can determine whether his company is successful or in distress such as:

1. Balance sheet
The best indicators of a company's financial successful or distress positions are the financial statements itself. Its is a reflection of the assets owned and the liabilities owed by a company at a certain point in time. The strength of a company's balance sheet can be evaluated by three broad categories of investment-working capital, asset performance, and capitalization structure.

2. Cash flow statements
Cash flow statements are a good indicator for a company's well being. When payments exceeds the cash income, the cash flow becomes negative which indicates that cash is running short and in the near future it will be insufficient to pay the bills and other dues. So watch out for changes in the organization's money position on its monetary record. Without new capital from value speculators or moneylenders, an organization in this circumstance can rapidly end up in a tough situation

2. The debt-equity ratio is also a good indicator. The debt-to-equity ratio compares a company's debt to shareholders' equity and is a good measure in assessing a company's debt default risk. So, the companies which are under high debts, have high debt- equity ratios and vice versa.