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., 300 words or more

Answer 1

A financial manager can assess whether his company is successful or in financial distress by looking various indicators,ratios. etc. Below are some of the indicators:

a) Current Ratio and quick ratio: Current ratio gives the idea of company's ability to meet short term liability with it's current ratio and quick ratio states it's ability to meet current liability with cash or cash equivalents. So, if these ratios are less than 1, then it's a matter of concern

b) Debt-Equity Ratio: If the Debt to Equity Ratio is greater than then financial manager need to be careful about company's capacity to take loans

c) Interest Coverage Ratio(EBIT/Interest Expense): This ratio is the company's ability to pay the interest expense for the debt they owe to the lender. If a financial manager observed that this ratio is decreasing over the years, the it is a matter of concern.

d) External factor such as market,political and economic condition also affects the business as well as the financial health of the company. If the external factors are not friendly,then financial stress can increase.

This way a financial manager can understand whether his company is financially healthy or financially distress.