• Use the Internet to locate four different recent bankruptcy filings from publicly traded corporations. Then, use the Internet to locate information on Altman’s Z-Score. Propose two steps that a company could take in order to avoid bankruptcy. Provide a rationale for your proposals. • Analyze the components of Altman’s Z-Score. Suggest at least two decisive measures that a company could take in order to lower its probability of bankruptcy. Provide sources/cites
Answer:
As located on the Internet, the four different recent bankruptcy filing and bankrupt Public Traded Corporations are :
|
Company |
Bankruptcy Date |
Assets** ($Mils) |
|
Peabody Energy Corporation |
04/13/16 |
$11,021 |
|
Alpha Natural Resources, Inc. |
08/03/15 |
$10,736 |
|
LINN Energy, LLC |
05/11/16 |
$9,977 |
|
Arch Coal, Inc. |
01/11/16 |
$8,430 |
As per internet, the Altman Z-score is the output of a credit-strength test that gauges a publicly traded manufacturing company's likelihood of bankruptcy. The Altman Z-score is based on five financial ratios that can be calculated from data found on a company's annual 10K report. It uses profitability, leverage, liquidity, solvency and activity to predict whether a company has a high degree of probability of being insolvent.
The Altman Z-score is calculated as : Z-Score = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E
Where: A = working capital / total assets , B = retained earnings / total assets , C = earnings before interest and tax / total assets , D = market value of equity / total liabilities & E = sales / total assets
Altman Z-Score Interpretation : A score below 1.8 means the company is probably headed for bankruptcy, while companies with scores above 3 are not likely to go bankrupt.
The two steps which a company could take in order to avoid bankruptcy are :
1) Have higher profit margin : The companies should have higher margin on sales so that there exists a positive gap between the revenues/Cash inflow and expenses/Cash outflow, which leads a company always in cash.
2) Have sales credit under check : The companies should keep the credit provided to the debtors under control, so that the cash does not struck and there is a free flow of cash in the company's business, which does not lead to bankruptcy of the company.
• Use the Internet to locate four different recent bankruptcy filings from publicly traded corporations. Then,...
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