Evaluating financial distress: With special reference to the Navratna companies of India

Abstract

Public sector undertakings/enterprises are wholly or partly owned by the government of India. Navratna companies have a special place in public sector undertakings as they have been given the status based on the operational and financial criteria that includes net profit, net worth, total cost of production, total manpower cost, cost of services, capital employed and profit before depreciation, interest, and taxes. The main aim of this research paper is to study the financial distress condition of the Navratna companies. For the purpose of computation of companies’ health Altman’s Z- Score Model is used. Usually, these types of enterprises do not face such a situationas they are self-sustainable but even if they are in such a situation,the government of India immediately may grant them funds and their chances of bankruptcy are reduced or delayed. However, they need to examine their financial conditions regularly as it will enhance the companies’ sustainability and financial creditability. The present study found that there are six companies are financially distressed, three companies are in grey zone and three companies are financially healthy.