6. Financial distress and bancruptcy

Description

Masters ACF Mind Map on 6. Financial distress and bancruptcy, created by christian.mogste on 12/04/2016.
christian.mogste
Mind Map by christian.mogste, updated more than 1 year ago
christian.mogste
Created by christian.mogste over 8 years ago
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1

Resource summary

6. Financial distress and bancruptcy
  1. Introduction
    1. 1. Measures of financial risk
      1. 2. Institutional differences between financial distress and bancruptcy
        1. 3. Classficiation of recovery strategies
          1. Cash generative
            1. Cash conserving
              1. Cash depleting
                1. Non-cash impact
                  1. governance

                    Annotations:

                    • Changing CEO/board
                  2. Financial

                    Annotations:

                    • Share repurchases
                    1. Asset

                      Annotations:

                      • Acquisitions
                  3. Operational

                    Annotations:

                    • Cost rationalisation Layoffs
                    1. Financial

                      Annotations:

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

                    Annotations:

                    • Increase cash, reduce costs
                    1. Financial

                      Annotations:

                      • Rasing debt/equity Debt refinancing
                      1. Asset

                        Annotations:

                        • Disposal,MBOs, sales and leaseback
                2. Bancruptcy
                  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. International bancruptcy laws
                      1. Asset allocation
                        1. Asset allocation
                          1. Secured claims
                            1. Debtor in possesion claims
                              1. Priority claims
                                1. General unsecured claims
                                  1. Preferred stock
                                    1. Common stock
                  2. Decline
                    1. Symptons
                      1. Absolute decline

                        Annotations:

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

                          Annotations:

                          • Measured agains benchmark
                        2. Causes
                          1. Financie

                            Annotations:

                            • Mismatch between business and financial risk
                            1. Strategy

                              Annotations:

                              • Management Luck
                        3. Financial distress
                          1. Occurance

                            Annotations:

                            • Occurs when promises are broken or honoured with difficulty
                            1. Def

                              Annotations:

                              • Flow based - insolvency: Operating cash flow are insufficient to cover contractually required payments
                            2. Insolvency
                              1. Def

                                Annotations:

                                • The value of the asset is less than the value of the debt
                                1. Identification of poor performers
                                  1. CAR

                                    Annotations:

                                    • Sum of abnormal return abnormal returns = Raw ret - return on control firms (same industry) Excluding macro economic risk
                                    1. Credit ratings
                                      1. Univariate
                                        1. Multivariate
                                          1. Z-score
                                          2. Interest cover
                                  2. Different from economic distress

                                    Annotations:

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

                                Annotations:

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

                                  Annotations:

                                  • Leverage
                                  1. Business risk

                                    Annotations:

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

                                      Annotations:

                                      • Interest rate Exchange Commodity
                                    2. Lead to:
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