Description
Industrial sickness is defined in India as "an industrial company (being a company registered for not less than five years) which has, at the end of any financial year, accumulated losses equal to, or exceeding
What is sickness
? Sickness is a problem
? It can be seen in two ways ;
1. when its assets are less than its debt 2.when operating cash flows of the firm are not enough to meet its obligation
Reason for sickness
? Unfavorable external environment
? Managerial deficiencies
Symptoms of sickness
? Delay or default in payment
? Irregularity in bank account ? Delay or default in payment to bank or Financials
institutions ? Decline in capacity utilization
Prediction of sickness
? It is not easy to reach a definitive conclusion about
impending sickness ? Sickness can be predicted more reliable in two ways: 1.univariate analysis 2.multivariate analysis
Univariate analysis
? In this analysis we have to compare the financial ratio
of each failed firm with non failed firm in the same industry and of comparable size. We examined a period of 5 years prior to the point of failure.
Multivariate analysis
? Univariate analysis examines financial ratio
individually but does not assess the joint predictive power of various combinations of ratio.
Revival of a sick unit
? A study must be done about that business unit and if
in study its suggests that unit can be revived in the limited period of time and if not then; ? Step must be taken to liquidation .
Viability study
? It should cover
o Finance o Market
o Operation
o Human resources o Environment
Revival programmed
? Settlement with the creditors
? Provision of additional capital ? Divestment and disposal
? Re-formulation of product
? Modernization of plant and machinery ? Reduction in man power ? Strict control over cost
Revival programmed conts..
? Streamlining of operations
? Improvement in managerial system ? Worker participation
? Change of management
? Merger with a healthy company
doc_604371493.pptx
Industrial sickness is defined in India as "an industrial company (being a company registered for not less than five years) which has, at the end of any financial year, accumulated losses equal to, or exceeding
What is sickness
? Sickness is a problem
? It can be seen in two ways ;
1. when its assets are less than its debt 2.when operating cash flows of the firm are not enough to meet its obligation
Reason for sickness
? Unfavorable external environment
? Managerial deficiencies
Symptoms of sickness
? Delay or default in payment
? Irregularity in bank account ? Delay or default in payment to bank or Financials
institutions ? Decline in capacity utilization
Prediction of sickness
? It is not easy to reach a definitive conclusion about
impending sickness ? Sickness can be predicted more reliable in two ways: 1.univariate analysis 2.multivariate analysis
Univariate analysis
? In this analysis we have to compare the financial ratio
of each failed firm with non failed firm in the same industry and of comparable size. We examined a period of 5 years prior to the point of failure.
Multivariate analysis
? Univariate analysis examines financial ratio
individually but does not assess the joint predictive power of various combinations of ratio.
Revival of a sick unit
? A study must be done about that business unit and if
in study its suggests that unit can be revived in the limited period of time and if not then; ? Step must be taken to liquidation .
Viability study
? It should cover
o Finance o Market
o Operation
o Human resources o Environment
Revival programmed
? Settlement with the creditors
? Provision of additional capital ? Divestment and disposal
? Re-formulation of product
? Modernization of plant and machinery ? Reduction in man power ? Strict control over cost
Revival programmed conts..
? Streamlining of operations
? Improvement in managerial system ? Worker participation
? Change of management
? Merger with a healthy company
doc_604371493.pptx