Deteriorating Financial Performance

Some businesses are intrinsically unviable irrespective of carrying out all the fine tuning processes in all possible aspects related to the business model. Some businesses have limited potential. However, many businesses have great degree of potential for growth and expansion. We can see around that businesses of similar nature are flourishing in the market. The future of a business is determined by some internal factors and some external factors. The external factors are either out of control of the management or have only partial control. However, the internal parameters are in complete control of the management. Despite favourable external factors some companies fail to grow or occasionally suffer from financial distress.

We can see the following state of operations of the companies depending upon their profitability and growth:

1. Companies growing at an extraordinary pace with an extraordinary degree of profitability with high PE ratio.
2. Companies growing at an extraordinary pace with an ordinary degree of profitability.
3. Companies with an ordinary growth rate and a respectable degree of profitability
4. Companies with an ordinary growth rate and a low degree of profitability
5. Companies with hardly any growth and a very low degree of profitability
6. Companies that are able to generate cash flow only to operate marginally beyond the break-even operating capacity
7. Companies that are making neither net accounting profit nor net accounting loss
8. Companies that are making some net accounting losses
9. Companies that are not able to pay full principle but can make all the interest payment.
10. Companies that are not able to pay any principle and not even the full interest on the debts
11. Companies that are not able to redeem the liabilities under various financial instruments
12. Companies that are not able to serve the debt & all other financial liabilities at all
13. Companies that making neither operating profit nor operating loss
14. Companies not able to generate sufficient cash flow to meet all the non-financial running costs
15. Companies making permanent operating losses
16. Companies eroding the capital in the current operations
17. Companies rapidly eroding the capital in the current operations
18. Companies not doing anything for financial restructuring
19. Companies where shareholders’ net-worth in the company is zero as per market valuations
20. Companies where the shareholder has negative net-worth
21. Companies where the stakeholder value has eroded to the maximum possible level or at least has completely evaporated
22. Companies impossible to run as going entities even with infusion of capital
23. Companies headed towards insolvency, bankruptcy, and liquidation
24. Companies where the personal assets of the promoters, directors, guarantors are being attached
25. Companies where there are civil or criminal litigations against the management apart from financial bankruptcy