Financial Distress : A Company

Many companies in the United States are struggling to survive. These companies are experiencing significant decreases in revenue, reduced assets, and increases in liabilities. Companies that already filed, or are at-risk for filing bankruptcy are struggling with keeping up with their competitors, causing the companies to lose their value. When a company files for bankruptcy, the company no longer gets to make the business decisions. The bankruptcy courts begin to make the decisions for the companies in efforts to restore the businesses. If the company is unable to revive itself from bankruptcy status, the company goes out of business. If this occurs, the company must sell everything it owns in order to compensate its shareholders and repay

These issues can be very threating to the company. There is a possible chance the company might lose business due to these potential failures. The company can face the following effects due to these failures:

However, in this society, an undercurrent of a financial crisis and deep personal anguish lays.

Issue: Have the directors of the company breached their duties mainly related to the company’s insolvent trading.

The objective of this case is to understand the importance of crisis management. This case is intended to make the reader consider not only financial implications at the time of the event but the effects on the long term strategies of the organization. Also, the case urges participants to think about the consequences not only on the customer but on those within the organization as well.

This report is designed to provide an evaluation of the financial fitness of Chester, Inc. through the creation and analysis of a full set of financial statements. Methods that will be used to analyze the income statement, balance sheet and statement of cash flows include: horizontal and vertical analysis, ratio analysis and comparison to competitors and the industry. All calculations used to create the financial statements and analyze them can be found in the appendix of this document. A list of differences between the presentation of these financials and International Financial Reporting Standards will also be included at the request of management. Results of this analysis shows that Chester, Inc. is performance is under industry averages in several areas, particularly in liquidity and profitability.

b. Other indications of financial difficulties (default on loan or similar agreements, arrearages in dividends, denial of usual trade credit from suppliers, restructuring of debt, noncompliance with statutory capital requirements, the need to seek new sources or methods of financing, or the need to dispose of substantial assets).

In order to analyses the statement that “our current insolvency laws put too much focus on penalizing and stigmatizing the failures,” the purpose of insolvency laws and the situation of the laws should be acknowledged first.

We know declaring bankruptcy is not a decision you made lightly. These are tough economic times and we know that there are so many things that can get out of hand and out of control.

In fact when companies realize that a customer is nearing bankruptcy they may also make offers for a fresh deal to the consumer that help to relieve him of some of his debt burden and at the same time the companies too can maintain their profit levels.

Many of the large corporations have gotten loans from banks in order to finance their operations and to raise capital. The creditors hence have a say with regard to the financial contracts and in case the firm goes down, the creditors have a first say basis in claiming the assets.

Financial crisis on the performance of the company. The global financial crisis brought with it very

I recognize there are certain situations where the government should contribute financial assistance in preventing massive companies from failing, because some companies provide economic stability and are too important to fail. However, an accurate determination of the national economic damages that a corporation’s bankruptcy may produce should be imperative in justifying whether a bailout is legitimate. An extensive corporation’s bankruptcy may have conflicting impacts on the economy such as; an increase in national unemployment rates, reduction of gross national profits and gross domestic products output. These plus countless other factors overtime could possibly influence a weakening in our economic system trickling down to the value of

That is when a person pays all debts as and able to become due which means solvency of cash flow which opposed to balance sheet solvency. Solvency of the company could be assessed from the company’s ability to raise funds through its assets, cash resources, borrowings where all the circumstance are observed with niche and corner so that the company’s solvency could be studied as small temporary lack of liquidity will not prove the insolvency of the company. Under the corporations act 2001, for the provision of insolvent trading proposes directors have the ordinary meaning including a shadow as well as de facto director. Under the Australian insolvent trading provisions, when the company’s incurs a debt, or company becomes insolvent by incurring that debt, and also there are reasonable grounds for suspecting that the company is insolvent or would so become insolvent as the case may be then the company’s directors are liable. So the director’s duty is not to incur debts during the insolvency of the company and their duty is also not to precent trading per se but to precent insolvent

Financial distress is defined as a low cash flow state of a firm in which it incurs losses without being insolvent or financial distress is a term in Corporate Finance used to indicate a condition when promises to creditors of a company are broken or honored with difficulty. Financial distress is different from insolvency. Financially distressed companies have lower profitability, higher leverage, lower past excess returns and larger size compared to active companies.