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In: Finance

What can a financially distressed company do to financially restructure itself (through balance sheets/income statements/financial theory/financial...

What can a financially distressed company do to financially restructure itself (through balance sheets/income statements/financial theory/financial tools)

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Expert Solution

A financially distressed company can do the following to restructure itself:

  • It can negotiate with the lenders to restructure the credit terms in order to increase the tenure of the loan and reduce the interest rate. This would ensure that the company which is distressed can still meet its debt obligations.
  • It can raise interest free loan from creditors or lenders.
  • It can ask the shareholders to infuse equity which would allow it to meet short term obligations and tide over the crisis.
  • It can trim its assets to generate cash by selling off non core assets.
  • It can also renegotiate the purchase contracts and restructure them to reduce cost of goods sold and increase gross margin.
  • It can slowly start to deleverage itself by paring down debt by increasing repayments and substituting high cost debt with low cost debt.

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