An Empirical Study on Financial Distress

Abstract

Financial Distress is a situation where a firm's operating cash flows are not sufficient to satisfy current obligations and the firm is forced to take corrective actions. A firm in financial distress may also face bankruptcy or liquidation to meet its liabilities. Financial distress may be caused by losses, dividend reduction. This paper uses the Z-score model (Al/mans' 1968) to predict risk of Financial Distress of Cl1ittoor Co-operative Sugars Ltd, Chittoor District of Andhra Pradesh ,from the year 2003-2008. Tire results clearly indicate, that the liquidity, working capital turnover efficiency and solvency position of the company is not good. The Z-Score analysis also shows that the company is suffering from the Financial Distress and fending towards bankruptcy.