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1f69e Warning Signs

1f69e Warning Signs






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  • Amity Business School

1f69e Warning Signs 1f69e Warning Signs Presentation Transcript

  • Amity Business School MBA Class of 2010, Semester IV Strategic Financial Management Prof Akhil Swami/Anuj Srivastava
  • Warning signs that banks should look for
  • Management related
    • Lacks technical expertise.
    • Failure to control costs.
    • Poor capacity utilization.
    • Improper inventory and receivables management.
    • Inability to anticipate problems and take remedial measures.
    • Failure to anticipate competition and losing competitors edge.
    • Diversion /siphoning of funds.
    • Fraudulent or speculative transaction.
    • Conflicts among promoters/directors/managers.
    • Improper delegation.
    • Owners not giving enough time to the financed unit.
    • Salaries show sharp reduction.
    • Budget/interim information not made available by management.
    • Promoters unaware of co present/ future direction.
    • Frequent changes in the senior management.
    • Board constitution and involvement.
    • Resignation of key personnel.
    • Non compliance with covenants.
    • Deterioration in the appearance in the premises
  • Technology related
    • Adopting processes that have not been tested on commercial stage.
    • Choice of obsolete technology.
    • Wrong choice of technology or collaboration. Not suitable to adopters local conditions.
    • Unsuitable non optimal location
    • Uneconomic size.
    • Faulty or unsuitable equipment.
    • Improper balancing of equipments.
    • High production wastages.
    • Failure to take care of environmental factors and pollution control measures.
    • Inadequate quality control procedures.
    • Improper choice of product mix.
    • Factory operating well below capacity.
    • Adoption of obsolete production methods.
  • Product Related
    • Overestimation of Demand.
    • Orders slowing down.
    • The borrowers changes suppliers frequently.
    • Inventory to one customer increases.
    • Concentration shifts from known to one of lesser stature.
    • Firm loses important supplier or customer.
    • Demand for product falls.
    • Obsolete product distribution methods still adopted.
    • The co still supplies to troubled customers and industries.
    • Product pricing improper.
    • Increased sales discount.
    • Large orders booked at fixed price even in inflationary times.
    • Ineffective marketing setup.
    • Unscrupulous sales and purchase practices.
    • Improper launch of new products.
  • Financial management related
    • Underestimating project cost at the time of appraisal.
    • Inadequate working capital; by faulty estimation or diversion.
    • Improper costing method for product pricing.
    • Financial risk due to high leverage.
    • A liberal dividend policy.
    • Diversion of bank funds.
    • Differing payment of payables and creditors.
    • Unusual items appearing in the balance sheet.
    • Negative trends in important indicators like sales, gross and net profit.
    • Slow down in collection of account receivables and increase in age of debtors.
    • Inter co payables and receivables not explained properly.
    • Undue reduction in cash balances, overdrawn cash balances, and uncollected cash normally liquid periods.
  • Contd.
    • Inability to take trade discounts,
    • Deferred payment of statuary liabilities.
    • Creditors not paid at the end of the wc cycle.
    • Interim results either not provided or provided incomplete.
    • Late release of financial statements to banks/FI.
    • Suppliers cut back favorable terms. Accumulation of unexplained debtors and creditors.
    • Large and frequent loans to and back from managers and affiliates.
    • Rotates or restructures bank debts.
    • Large customers creditworthiness not ascertained.
    • Expanded without WC.
    • Financial controls are weak.
    • Sale of profitable business or product line.
    • Approaches bak frquenly for adhoc increase in limits.
  • Exogenous to the Firm
    • Currency Risk----If it depends heavily on imported equipments.
    • Upward revision on import duties.
    • Delay in approval from Govt/Statuary bodies.
    • Delay in sanction of loans.
    • Non availability of RM.
    • Power Cuts.
    • Transport bottlenecks.
    • Delay in supply of critical equipments.
    • Act of God.
    • Delay in Commissioning Down stream projects .
    • Withdrawal or reduction or reduction in the degree of protection by Govt,
    • Entry barrier low .
    • Availability of cheaper substitutes in the market.
    • Economic slow down.
    • Funding not adequate