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Financial Conservative Policies Depend on Financial Distress - Dissertation Example

Finance & Accounting
Pages 17 (4267 words)
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Financial conservatism is one of the most important reflectors of the financial state of a company. Ordinarily, such an attitude is adopted by companies which are either in financial distress or operate in a rather risky environment. …

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Financial Conservative Policies Depend on Financial Distress

While high cash balance indicates the presence of huge fund reserves to the company while, low leveraged financial structure implies that the concerned firm prefers turning towards equity financing over debt financing when they need funds for investment. However, maintaining such a stance might not necessarily mean that the concerned company is operating in a financially distressful environment. When firms find it difficult to meet their financial obligations to their creditors or fail to meet the same, they are considered as traversing through a phase of financial distress. But, financial conservatism might not imply that the firm in question is in a distressful phase of time; it might even mean that the entity is trying to shield itself against too much openness, which could land it up in a mess. However, one important factor which could be cited at this point is that financially conservative policies are highly transitory in nature. The present paper is targeted towards an examination of the extent to which financial conservatism is a suitable reflector of whether the company in question is literally amidst financially distressful phase or not.
1.1 Research Aims and Objectives
The present paper attempts to assess whether firms which maintain a financially conservative policy are actually victims of financial distress or not. ...
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