6. Financial distress and bancruptcy

christian.mogste
Mind Map by christian.mogste, updated more than 1 year ago
christian.mogste
Created by christian.mogste over 4 years ago
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Description

Masters ACF Mind Map on 6. Financial distress and bancruptcy, created by christian.mogste on 04/12/2016.

Resource summary

6. Financial distress and bancruptcy
1 Introduction
1.1 1. Measures of financial risk
1.1.1 2. Institutional differences between financial distress and bancruptcy
1.1.1.1 3. Classficiation of recovery strategies
1.1.1.1.1 Cash generative
1.1.1.1.1.1 Cash conserving
1.1.1.1.1.1.1 Cash depleting
1.1.1.1.1.1.1.1 Non-cash impact
1.1.1.1.1.1.1.1.1 governance

Annotations:

  • Changing CEO/board
1.1.1.1.1.1.1.2 Financial

Annotations:

  • Share repurchases
1.1.1.1.1.1.1.2.1 Asset

Annotations:

  • Acquisitions
1.1.1.1.1.1.2 Operational

Annotations:

  • Cost rationalisation Layoffs
1.1.1.1.1.1.2.1 Financial

Annotations:

  • Debt - equity swaps Dividend cut/omission Scrip dividend
1.1.1.1.1.2 Operational

Annotations:

  • Increase cash, reduce costs
1.1.1.1.1.2.1 Financial

Annotations:

  • Rasing debt/equity Debt refinancing
1.1.1.1.1.2.1.1 Asset

Annotations:

  • Disposal,MBOs, sales and leaseback
1.1.1.2 Bancruptcy
1.1.1.2.1 Def

Annotations:

  • Court process designed to help costumersand business eliminate their debts or repay them under protectio of the bancruptcy court. Can be described as liquidation and reorganisations.
1.1.1.2.2 International bancruptcy laws
1.1.1.2.2.1 Asset allocation
1.1.1.2.2.1.1 Asset allocation
1.1.1.2.2.1.1.1 Secured claims
1.1.1.2.2.1.1.1.1 Debtor in possesion claims
1.1.1.2.2.1.1.1.1.1 Priority claims
1.1.1.2.2.1.1.1.1.1.1 General unsecured claims
1.1.1.2.2.1.1.1.1.1.1.1 Preferred stock
1.1.1.2.2.1.1.1.1.1.1.1.1 Common stock
1.1.2 Decline
1.1.2.1 Symptons
1.1.2.1.1 Absolute decline

Annotations:

  • Same as competitors. Wouldnt tell too much
1.1.2.1.1.1 Relative decline

Annotations:

  • Measured agains benchmark
1.1.2.1.2 Causes
1.1.2.1.2.1 Financie

Annotations:

  • Mismatch between business and financial risk
1.1.2.1.2.1.1 Strategy

Annotations:

  • Management Luck
1.1.2.2 Financial distress
1.1.2.2.1 Occurance

Annotations:

  • Occurs when promises are broken or honoured with difficulty
1.1.2.2.1.1 Def

Annotations:

  • Flow based - insolvency: Operating cash flow are insufficient to cover contractually required payments
1.1.2.2.2 Insolvency
1.1.2.2.2.1 Def

Annotations:

  • The value of the asset is less than the value of the debt
1.1.2.2.2.2 Identification of poor performers
1.1.2.2.2.2.1 CAR

Annotations:

  • Sum of abnormal return abnormal returns = Raw ret - return on control firms (same industry) Excluding macro economic risk
1.1.2.2.2.2.1.1 Credit ratings
1.1.2.2.2.2.1.1.1 Univariate
1.1.2.2.2.2.1.1.1.1 Multivariate
1.1.2.2.2.2.1.1.1.1.1 Z-score
1.1.2.2.2.2.1.1.1.2 Interest cover
1.1.2.2.3 Different from economic distress

Annotations:

  • Financial distress - Profitable operations but wrong capital structure. Economic distress - Unprofitable operations.
1.2 Financially distress def

Annotations:

  • A firm is financially distressed when its cash flow is not sufficient to satisfy its current obligation.
1.2.1 Financial risk

Annotations:

  • Leverage
1.2.1.1 Business risk

Annotations:

  • Product Competition Firm specific Able to control
1.2.1.2 Macro-economic risk

Annotations:

  • Interest rate Exchange Commodity
1.2.2 Lead to:
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