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

These are following financial metrics which are looked upon by the financial manager in order to find out whether the business is successful or not-

A. Past trend of increase or decrease in debt equity ratio will be helping the financial manager in order to ascertain whether the company is loaded with higher amount of debt or the company has manageable amount of debt.

B. The ability of the company of generation of the cash flows should also be looked upon through cash flow statement of the company which will be helpful in ascertainment of the overall cash embedded with the company and it will be helpful in ascertaining whether the company has adequate amount of cash or not.

C. I will also be looking for the liquidity ratio of the company in form of current ratio or quick ratio so that we will be able to find out whether the company is having adequate amount of liquidity in its hands in order to discharge periodic debt repayment or not.

D. I will also be trying to lookup on the target structure of the company in previous years and I will be trying to compare it with the actual performance of the company so that I will be able to find out the derivation and I will be able to ascertain whether the company is performing according to the Expectations or not.

E. financial manager should also look at the credit rating which is provided by the various credit agencies has gone down or gone up.

F. financial manager should also look up on any kind of financial distress cost caused which has been accrued to the company or not in the past years because that will be providing with warning sign regarding any possible bankruptcy.