High Leverage and Full-Blown Financial Distress: Manifestation from Public Sector Chemical Companies in Kerala

High leverage increases the risk of financial distress. When revenue declines or unexpected expenses arise, a highly leveraged company has less flexibility and a greater risk of insolvency due to its high debt service requirements. Financial distress is a situation where a company is not able to meet or face difficulty to pay off its financial obligations. According to RBI’s definition negative working capital, cash loss and negative networth are the factors influencing Financial Distresses. There are lots of causes of corporate failure which includes Profitability, Liquidity and solvency complications. Bankruptcy prediction models are among the techniques and tools for predicting future status of companies which can estimate the bankruptcy probability by compounding a set of financial ratios. This research paper has attempted to device models for predicting probability of financial distresses among the PSUs working under the Chemical Sector in Kerala. In order to evaluate the ratios that can influence group status and quantify their connection, Multiple Logistic Regression analysis tool is administered.