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Š Š Š Š Š Š Š Š Introduction Definition Causes of sickness Symptoms of sickness Prediction of sickness Revival of a sick unit Conclusion References .

private textile mills which were nationalized became part of the National Textile Mills (NTC). Increasing number of sick. to enable them to revive under their then existing structure.Š Š Š Š Š The Industrial Reconstruction Corporation of India (IRCI) was established in 1980¶s to provide financial assistance to sick units. where interested companies were invited to takeover. Later it was converted to The Industrial Reconstruction Bank of India (IRBI). During the 1980s. the Government of India had set up The Industrial Reconstruction Corporation of India (IRCI) to provide financial assistance to Sick Units. to carry the same function under a different mould. In 1985 the Sick Industrial Companies (Special Provisions) Act 1985. was enacted. lease or amalgamate the sick company into itself. .

current ratio is less then 1:1 and debt/equity ratio is worsening. Cash losses for a period of two years or continued erosion in net worth. in the judgment of the financing bank. . that is. is likely to incur cash losses for the current as well as following year and/or there is an imbalance in the unit¶s financial structure.´ Term lending financial institutions classifies a unit as sick after considering any of the following symptoms: Default in meeting four consecutive half-yearly installments of interest or principal in respect of institutional loans. Mounting arrears on account of statutory and other liabilities for a period of 1 to 2 years. say by 50 percent.Š Š ‡ ‡ ‡ RBI defined a sick unit as ³One which has incurred cash losses for one year and.

Š Š The management·s failure to control the situation Due to factors beyond the control of management .

Š The fact that it is not able to take corrective actions in time Inability to respond to the demand of the situation Dispute amongst the management/promoters or deliberate actions on the part of the scrupulous promoters Š Š .

Shortage of key inputs Changes in government policies Development of new technologies Sudden decline in orders from major customer Natural calamities .Š Š Š Š Š Š Š Š Š Change in market preferences and Shifts in consumer preferences Shrinking market share of company¶s product Power or labour problems Working capital constraints.

Š Š Š Š Š Š Š Š Š Delay or default in payment to suppliers Irregularity in the bank account Decline in capacity utilization Low turnover of assets Accumulation of inventories Excessive turnover of personnel Extension of accounting period Poor maintenance of plant and machinery Decline in the price of equity shares and debentures .

Š ‡ ‡ The sickness of any unit can be predicted by using Univariate Analysis and Multivariate Analysis. .

Beaver conducted three types of analysis to determine the predictive power of financial ratios: A comparison of mean values A dichotomous classification analysis An analysis for likelihood ratios .Š ‡ ‡ ‡ In Univariate analysis. an attempt is made to predict sickness on the basis of single financial ratio.

It essentially involves estimating a function which discriminates best between the groups.Š This is a statistical technique which helps in classifying an observation into one of the several pre-specified groups on the basis of certain characteristics of the observation. The discriminate function is usually a linear one. .

a viability study should be conducted to assess whether the unit can be revived/rehabilitated within a reasonable period.Š ‡ ‡ ‡ ‡ ‡ When an industrial unit is identified as sick. Study generally covers the following Market Analysis Production/Technical Analysis Financial Analysis Personnel Organization Environment .

At the same time. keeping in view the fact that a fast track winding up of companies may also bring about miseries in the lives of people who would be affected by reason of the loss of their jobs. It is prudent to align ones economic order with the world·s order of allowing only the efficient/fittest to survive.Š Š Š Š The Government has switched the mode from a socialist approach. towards a capitalist approach. where efficiency of the capital employed is of prime concern and the inefficient may be shown the door and the fittest allowed to survive. to the problem of sickness of companies might be followed. which aimed at preserving employment at every cost. a humane approach. . Our country has to still carry along such a population which does not have any education and may not have many avenues for employment. other than the industry.

com www.Š Š Š Š .wikipedia.investopedis.icai.