Question

In: Accounting

Search the Internet or Strayer databases for a publicly traded company that recently filed for bankruptcy...

Search the Internet or Strayer databases for a publicly traded company that recently filed for bankruptcy protection. Review the most recent financial information for the company and be prepared to discuss. "Financial Risk" Please respond to the following: • Based on the company you researched that file for bankruptcy,, assess the financial “red flags” that would have indicated that the company may be having financial difficulty providing suggestions related to how management should address these problems. Provide support for your rationale. • Evaluate whether or not you are confident that the models used for predicting bankruptcy would have been adequate to predict the invariable bankruptcy of the company you researched. Provide evidence supporting your position

Solutions

Expert Solution

Investors can use a number of financial risk ratios to assess an investment's prospects. For example, the debt-to-capital ratio measures the proportion of debt used given the total capital structure of the company. A high proportion of debt indicates a risky investment. Another ratio, the capital expenditure ratio, divides cash flow from operations by capital expenditures to see how much money a company will have left to keep the business running after it services its debt.

Types of Financial Risks

There are many types of financial risks. The most common ones include credit risk, liquidity risk, asset-backed risk, foreign investment risk, equity risk and currency risk.

Credit risk, also referred to as default risk, is the type of risk associated with people who borrow money and become unable to pay for the money they borrowed. As a result, they go into default. Investors affected by credit risk suffer from decreased income from loan payments, as well as lost principal and interest, or they deal with a rise in costs for collection.

Several types of financial risk are tied to market volatility. Liquidity risk involves securities and assets that cannot be purchased or sold quickly enough to cut losses in a volatile market. Equity risk covers the risk involved in the volatile price changes of shares of stock. Asset-backed risk is the risk that asset-backed securities may become volatile if the underlying securities also change in value. The risks under asset-backed risk include prepayment risk and interest rate risk, both of which may also accompany other types of risk.

Investors holding foreign currencies are exposed to currency risk because different factors, such as interest rate changes and monetary policy changes, can alter the value of the asset that investors are holding. Meanwhile, changes in prices because of market differences, political changes, natural calamities, diplomatic changes or economic conflicts may cause volatile foreign investment conditions that may expose businesses and individuals to foreign investment risk.

An Example of Financial Risk and Leveraged Buyouts

Toys "R" Us announced in September 2017 that it had voluntarily filed for Chapter 11 bankruptcy. In a statement released alongside the announcement, the company's chairman and CEO said the firm was working with debtholders and other creditors to restructure the $5 billion of long-term debt on Toys "R" Us' balance sheet. The firm also announced that it had received a commitment for more than $3 billion in debtor-in-possession financing from a JP Morgan-led bank syndicate, existing Toys "R" Us lenders and others — all of whom were clearly subject to financial risk, alongside Toys "R" Us shareholders.

Much of this financial risk reportedly stemmed from a $6.6 billion leveraged buyout of Toys "R" Us by mammoth investment firms Bain Capital, KKR & Co. and Vornado Realty Trust in 2005. In March 2018 after a disappointing holiday season, Toys "R" Us announced that it would be liquidating all of its 735 U.S. locations in order to offset the strain of dwindling revenue and cash amid looming financial obligations. Reports at the time also noted that Toys "R" Us was having difficulty selling many of its U.S. stores, an example of the liquidity risk that can be associated with selling real estate. Many commentators have pointed to the struggles of Toys "R" Us as proof of the immense financial risk associated with debt-heavy buyouts and capital structures, which inherently heighten risk for creditors and investors.



Read more: Financial Risk https://www.investopedia.com/terms/f/financialrisk.asp#ixzz5LQOn5TeW
Follow us: Investopedia on Facebook


Related Solutions

Search the Internet or Strayer databases for a publicly traded company that recently filed for bankruptcy...
Search the Internet or Strayer databases for a publicly traded company that recently filed for bankruptcy protection. Review the most recent financial information for the company and be prepared to discuss. "Financial Risk" Please respond to the following: • Based on the company you researched in the e-Activity, assess the financial “red flags” that would have indicated that the company may be having financial difficulty providing suggestions related to how management should address these problems. Provide support for your rationale....
Search the Internet or Strayer databases for a publicly traded company that recently filed for bankruptcy...
Search the Internet or Strayer databases for a publicly traded company that recently filed for bankruptcy protection. Review the most recent financial information for the company and be prepared to discuss. "Financial Risk" Please respond to the following: • Based on the company you researched in the e-Activity, assess the financial “red flags” that would have indicated that the company may be having financial difficulty providing suggestions related to how management should address these problems. Provide support for your rationale....
Research one (1) publicly traded company in which you are interested using the Internet and/or Strayer...
Research one (1) publicly traded company in which you are interested using the Internet and/or Strayer databases. Review its most recent statement of cash flows and income statement on the company's Website. Be prepared to discuss. Outline a strategy for companies to spend excess cash and maximize the value of that spend. Provide a rationale for your response. Compare and contrast the selected company's statement of cash flows to its income statement. Suggest at least two (2) items from each...
Use the Internet and/or Strayer Library to research a publicly-traded company that manufactures technology products. Recommend...
Use the Internet and/or Strayer Library to research a publicly-traded company that manufactures technology products. Recommend one (1) approach that your selected company can take to lower either the direct labor or direct material costs of technology products while remaining competitive with global markets. Provide a rationale for your recommended approach.
Using the Internet or the Strayer databases, select a different company of your choice but this...
Using the Internet or the Strayer databases, select a different company of your choice but this time analyze the Statement of Cash Flows for that chosen company. Next, discuss the change in cash flows for the three (3) different categories of cash flows and identify the totals for each category and at least one (1) significant item in each. Be sure to interpret this information in terms of the long-term health of the company. Provide support for your response
Using the Internet or the Strayer databases, research the financial statements of a company of your...
Using the Internet or the Strayer databases, research the financial statements of a company of your choice. Next, discuss the type of bonds it has issued. You will then explain which features make an issue attractive and unattractive to an investor. To conclude this discussion prompt, elaborate on the key features you would suggest on a future bond issue. Provide support for your response.
"Accounting Methods and Inventories" Please respond to the following: Using the Internet or Strayer databases, research...
"Accounting Methods and Inventories" Please respond to the following: Using the Internet or Strayer databases, research an example of fraud by inventory misstatement for a public company in the last five (5) years. Next, explain this incident, including the particulars of how the fraud was achieved and how it was detected. Research clearly shows that whistleblowers are the best detection method. Explain the role whistleblowers played in the fraud example you selected previously, or how a whistleblower would have enhanced...
Select a successful publicly traded company that you are interested in and use the Internet to...
Select a successful publicly traded company that you are interested in and use the Internet to research its use of inventory management systems and technology. Examine the inventory management system of the selected publicly traded company. Determine the key ways that inventory management systems and technology have given the selected company a competitive advantage in the marketplace. Evaluate the efficiency of two common inventory control systems. Determine the ways in which they provide a firm with a competitive advantage in...
Please access the balance sheet of a publicly traded company on the internet, and discuss if...
Please access the balance sheet of a publicly traded company on the internet, and discuss if the company has recorded any impairment of long-term assets and how it is disclosed in the notes.
Please respond to the following: -Use the Internet to research a publicly traded company that received...
Please respond to the following: -Use the Internet to research a publicly traded company that received an unqualified audit report from external auditors and faced accusations of reporting false or misleading accounting information. -Discuss the departures from generally accepted accounting principles (GAAP) that you have researched, and give your opinion as to whether or not the Public Company Accounting Oversight Board (PCAOB) should levy sanctions against the CPA firm for issuing the unqualified report. -Identify the sanctions and section of...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT