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AFROZ MALIK Click to edit Master subtitle style (58) KHUSHNOOD FAKHI (15) PROF. PANDALIA
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DEFINITION OF SICKNESS
RBI define as a sick unit as One which has incurred cash losses for one year and, in the judgment of the financing banks, Click to edit Master subtitle style is likely to incur cash losses for the current as well as following year and/or there is an imbalance in the units financial structure , that is, current ratio is less then 1:1 and debt/equity ratio is worsening.
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Term lending financial institution classify a unit as a sick after considering any of the following symptoms:
Default in meeting four consecutive half-yearly installments Click to editprincipal in respect of institutional loans. of interest or Master subtitle style Cash losses for a period of 2 years or continued erosion in the net worth, say by 50 percent. Mounting arrears on account of statutory and other liabilities fro a period of 1 to 2 years.
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Causes of Sickness
Unfavorable external environment oManagerial deficiencies qProduction qMarketing qFinance Click to edit Master subtitle style qPersonnel
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Managerial deficiencies
Production
Improper location Click to edit Master subtitle style
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Marketing
Inaccurate demand projection oImproper product mix Click to edit Master subtitle style oHigh distribution cost oPoor customer service
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Finance
Wrong capital structure o Bad edit Master subtitle style Click to investment decision o Weak budgetary control o Improper tax planning
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Personnel
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Symptoms of Sickness
Delay or default in payment to supplier Irregularity in bank account Low turnover of assets Click to edit Master subtitle style Accumulation of inventories Poor maintenance of plant and machinery Decline in the price of equity shares and debenture
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Prediction of Sickness
Univarate analysis qMultivariate analysis
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Univariate Analysis
In univariate analysis, an attempt is made to predict sickness on the basis of single Click to editratio subtitle style financial Master The three type of analysis conducted to determine the predictive power of financial ratio.
A comparison of mean value A dichotomous classification analysis, and An 4/28/12 analysis for likelihood ratio
Multivariate Analysis
Multivariate technique, commonly used in predicting business failure or sickness, is the Click to editof multiple of discriminant analysis. technique Master subtitle style This is a statically technique which help in classifying an observation. It essentially involves estimating a function which discriminates best between the groups. The discriminating function is usually a linear one.
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Viability Study
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Market Analysis
Market share behavior over the past few years. oGrowth rate of the total market. oEmergence of competition. oComparative price and cost analysis. Click to edit Master subtitle style oOrder book position. oUnique selling proposition, if any, employed by the firm. oConsumer attitudes, preference, and needs. oDistribution channels used by the firm. oDistribution cost analysis.
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Production/Technical Analysis
Technological capability of the firm . oPlant condition. oDegree of balance in the capacities at different stages of manufacturing. Click to edit process. oManufacturing Master subtitle style oPlant Maintenance system. oAvability of power, water, fuel, and other utilities. oSupply of raw material.
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Finance
Liquidity position. oLeverage analysis. oTurnover of assets. oProfitability. Click to edit Master subtitle style oEstimate of working capital needs. oBalance sheet and income statement projection. oBudgetary control and responsibility accounting. o Cost reduction and reduction.
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Personnel Organization
Click to edit Master subtitle style Human resources
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Environment
Supply of raw material. oAvability of power, fuel, and water. oGovernmental policies with respect of excise duties, Click to edit Master subtitle style custom duties, export duties, reservations, etc. oIndustrial licensing policy. oLending policies of financial institution and commercial banks. oGeneral industrial relation situation. oCompetitive developments.
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Revival programme
Settlement with creditors oProvision of additional capital o Reformulation of product- market strategy oModernizations of plant and machinery Click to edit Master subtitle style oReduction in manpower oStrict control over cost oImprovement in managerial system oChange of management oDebt reconstructing
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