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what are the reasons of firms suffering from financial distress?

by | May 24

Task 1. “World financial crisis and recession are the consequences of poor banking practices and aggressive investments made by MNCs”. Based on the given sentence, what are the reasons of firms suffering from financial distress? Briefly elaborate the firm responses to financial distress and mention the advantages and disadvantages of private workout / bankruptcy. (9 marks)
Task 2. “Forecasting is the key for the success of any business firm. Without proper forecasting, businesses fail to materialize their budgets and financial objectives”. With view to the mentioned statement, define financial forecasting and compare between qualitative and quantitative forecasting methods with the help of suitable examples / types. (9 marks)
Task 3. What do you mean by Z score and DuPont Analysis? Briefly specify the strategic uses of these methods in business decision making. (9 marks)
Task 4. Summarized are the key ratios and financial snapshots of three different companies:

Company A
Company B
Company C

Total Net Profit (current year)
$1,000,000
$1,000,000
$1,000,000

Cash Balance (current year)
$200,000
$100,000
$20,000

Current ratio
2 times
3 times
4 times

Gross profit ratio
35 %
20 %
18 %

Net profit ratio (based on PAT)
20 %
8 %
4 %

Return on equity
10 %
10 %
10 %

Receivable days
60 days
40 days
90 days

Inventory days
50 days
65 days
120 days

Payable days
100 days
60 days
30 days

Z score
4.75 (B+)
Gray Zone

4.95 (BB-)
Gray Zone

5.25 (BB)
Gray Zone

NOTE: All the three companies are in same industry and have same set of variables exposed to them.
i. From the above information, comment on the financial health of the stated companies. (10 marks)
ii. Highlight the positive factors and red flags for each of the stated companies. (5 marks)
iii. As an investor in the equity market, choose one company for your investment plans. Give proper justification. (5 marks)
Marking scheme:

Task 1
9 marks

Task 2
9 marks

Task 3
9 marks

Task 4
20 marks

Overall structure & referencing
3 marks

TOTAL =
50 marks

This is an “Individual Assignment”.
NOTE: Instructions to candidates:
· Your submissions should be through Turnitin.
· You should write your answers clearly and show relevant workings.
· Use Times Roman / Arial font of 12 size, 1 ½ spacing.
· Downloading information and pasting it in assignment is prohibited.
· Plagiarism is an academic offence. Avoid plagiarism.
· Assignment word limits: no word limit

****** END OF THE ASSIGNMENT ******

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