Reply 8.1

 

Signs a finance manager should look, to determine whether his company is in distress.

1) Low Profits. When any business struggles to sustain profits, it is a sign of financial distress.

2) Bad Quality of Products or Services. If a business is selling Bad quality, customers will go to other customers and consequently sales

3) Fall in Sales growth. A fall in sales growth rings the bells that the company will eventually go into red.

4) Defaulting Customer Payments. Default by customers in making timely payments or deferring payments indefinitely is a sign of distress. Ther have been instances where major clients not paying their dues have made companies bankrupt.

5) Minus Cash Flows. Minus Cash Flows over a consistent period of time could mean lack of funds, financial bankruptcy and distress

6) Reduced relationships with Bankers. Bankers asking for more security declining guarantees, withdrawig overdrafts are signs of financial distress

7) Declining Current ratio. Current ratio best preferred is 2. beteween 1,5 to 2 comfortable. Current ratio below 1,5 signals distress.

8) Absence of financial reports. Financial reports indicate the health of the company. Timely preperation helps take remedial action. Absence of the same is catastrophic.

9) Increased borrowings. When a company continously borrows to cover losses, baddebts etc it is sign of danger.

References: 

McClure, B. (2018, July 25). Financial Ratios to Spot Companies In Financial Distress. Retrieved from https://www.investopedia.com/articles/financial-theory/10/spotting-companies-in-financial-distress.asp 

Brigham, E. F., & Ehrhardt, M. C. (2017). Financial management: Theory & Practice, (15th ed.). Boston

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