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88e6esickness Of Industry

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88e6esickness Of Industry

  1. 1. Amity Business School MBA Class of 2010, Semester IV Strategic Financial Management Prof Akhil Swami/Anuj Srivastava
  2. 2. Sickness of Industry RBI----Incurs cash losses for 1 year and is likely to continue to incur cash losses for the next year.
  3. 3. <ul><li>---a small scale industry should be considered as sick if it has at the end of any accounting year , accumulated losses equal to or exceeding 50 % of its peak net worth in the immediately preceding. </li></ul><ul><li>Study team of SBI, in its report on SSI, defines it , one which fails to generate internal surplus on continuing basis and depends for its survival upon frequent infusion of external funds. </li></ul>
  4. 4. <ul><li>SICA Act ---an industrial company (registered for not less than 7 years) which has at the end of any financial year accumulated losses equal to or exceeding its entire net worth and has also suffered cash losses in such financial year and the financial year immediately preceding such financial year. </li></ul>
  5. 5. Signals of sickness <ul><li>Decline in capacity utilization. </li></ul><ul><li>Shortage of liquid funds to meet short term financial obligations. </li></ul><ul><li>Inventory in excessive quantity. </li></ul><ul><li>Non submission of data to FI/Banks. </li></ul><ul><li>Irregularity in maintaining bank accounts. </li></ul><ul><li>Frequent breakdown in plant and equipment. </li></ul><ul><li>Delay or default in the payment of statuary dues. </li></ul><ul><li>Decline in technical frequent turnover of personnel. </li></ul>
  6. 6. Symptoms which emerge after signals <ul><li>Persistent shortage of cash. </li></ul><ul><li>Deteriorating financial ratios. </li></ul><ul><li>Widespread use of creative accounting. </li></ul><ul><li>Continuous tumble in the prices of the shares. </li></ul><ul><li>Requests to banks for loans. </li></ul><ul><li>Delay and default of statuary dues. </li></ul><ul><li>Delay in audit of accounts. </li></ul><ul><li>Non maintenance of premises. </li></ul><ul><li>Lack of interest by management. </li></ul>
  7. 7. Causes of sickness <ul><li>External…. change in government policy, non availability of inputs, lack of demand, industrial unrest, shortage of finance, natural calamities. </li></ul><ul><li>Internal – lack of good management, poor implementation, marketing problems, working capital, technical problems. </li></ul>
  8. 8. consequences <ul><li>Financial loss. </li></ul><ul><li>Loss of employment. </li></ul><ul><li>Industrial unrest. </li></ul><ul><li>Harm to investment. </li></ul><ul><li>Wastage of scarce recourses. </li></ul><ul><li>Loss of public revenue. </li></ul>

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