PRESENTATION ON FINANCIAL DISTRESS

PRESENTED BY: VANISHA 1174566

Financial Distress
Financial distress is a condition where a company cannot meet or has difficulty paying off its financial obligation to its creditors. A situation where a firms operating cash flows are not sufficient to satisfy current obligations and the firm is forced to take corrective action. It can lead to bankruptcy sometimes. It may lead a firm to default on a contract, and it may involve financial restructuring between the firm, its creditors, and its equity investors

Characteristics
Unfavorable financial status. Costs overshoot revenues Inability to honour financial obligations. Threat of bankruptcy. Threatens companys image.

Lack of Liquidity

Mismanagement

Over/under diversification

Causes
Obsolescence Negligence

Impacts
Damaged Relationship

ill-will not goodwill

Demotivation of employees

Difficulty in future ventures

Declining value of company

Financial Restructuring
It means the balance in debt & equity funds to achieve reduction in Cost of capital To increase in EPS. To improve market value of share. To reduce the control of financiers on the mgmt of the company.

Conti.
It is an adjustment of debt-equity ratio to achieve maximization of wealth of share holder. It involves restructuring of assets & liabilities of the company, to promote efficiency, support growth & maximize value to share holder , creditors & other stakeholder. It means to reorganize the resources, strategies & assets.

1. Retrenchment
The highly diversified firm may be divested & all the resources focused on core products and services.

This help the company gain a forte & competitive edge. This reduces costs & also generates cash inflow which can be redirected to invest in core products production & marketing.

2. Product Re-engineering & Differentiation

It will happen when company opt for making significant changes in existing products as per the most market requirements. A proper market research based preferred features should be incorporated.
This can bring fresh outlook towards the products & the company. The product should be differentiated from competetitors so that competitive edge can be attained.

3. Capital Structure Restructuring

The debt may be paid off by disposing of the asset or unrelated business to balance debt equity ratio.

4. Process Re-engineering
Introduction of efficient ways to manufacture a product.
It involves technological innovations.

5. Value Engineering
It focuses on quality enhancement.

6. New Product Development

The funds could be generated by selling away idle assets. This will help the company in producing new product.

7. Market Re- positioning

Repositioning is effected usually through changing the marketing mix in response to changes in the market place.