- •Exhibit 1. Screening Ratios
- •Exhibit 2. Growth Ratios, y-t-y percentage changes
- •Exhibit 3. Financial Analysis (1/2)
- •Exhibit 4. Financial Ratio Analysis (2/2)
- •Exhibit 5. Calculation of Additional Fund Needed
- •Exhibit 6. Price Performance
- •Exhibit 7. Calculation of Altman's z-score model
- •Exhibit 8. Calculation Recovery Solvency Ratio
- •Exhibit 9. Computation of Future Cash Flow (1/3)
- •Exhibit 10. Computation of Future Cash Flow (2/3)
- •Exhibit 11. Computation of Future Cash Flow (3/3)
- •Exhibit 12. Forecast of Adjusted Future Cash Flow
Exhibit 5. Calculation of Additional Fund Needed
|
Value |
Assets tied directly to Sales |
479 724,000 |
Sales during the last year |
504 483,000 |
Sales during projected year |
625 000,000 |
Capital Intensity Ratio |
0,951 |
The increase in Sales |
120 517,000 |
Spontaneous Liabilities affected by Sales |
168 670,000 |
Spontaneous Liabilities Ratio |
0,334 |
Projected Net Income |
-0,209 |
Retention Ratio |
0 |
AFN |
74 308,341 |
With the lack of creditors’ patient and coming default on gathering loans it means that Coleco has no options to raise these funds, so the company couldn’t maintain the current business activity.
Since Coleco couldn’t go on with the business there are some restructuring options should be considered:
Merger with another firm with the hope that there might be some latent value in the company’s assets – such approach is beneficial only when a synergy effect will take place. As it goes from Exhibit 4, since 1986 the value of total liabilities tends to be greater of the total value of assets about more than 15% (by the end of 1987). So no firm will be interested to acquire it.
Issue more equity at right market price – the below graph depicts a comparison of Coleco to the S&P 500 over the middle of 1980’s. Coleco depreciated almost 80% over the period (-79,381%), compared to 59,274% growth for the S&P. The stock closely mirrored recessionary pressure of 1987’s autumn, dipping only slightly in price and gaining minimum in March of 1988. Since the value of equity is more than ($84) million, and the company is facing losses in the last two years new equity from outsiders was virtually out of question.
Exhibit 6. Price Performance
Renegotiation of debts – the capital structure ratio of Coleco proves that it acquires its assets inefficiently. The debt to equity ratio has had unfavorable impact over the period. Since 1986 Coleco was using more debt than equity with ratios of 1,013 and 1,157. This proves that Coleco is not creditworthy because its overall times interest earned ratio annually came lower over the period. The annual volatility of the 11,25% debenture was 41,1% and the annual volatility of the 14,375% was 43,1%. So under this situation, renegotiation of debt will not be possible to Coleco.
Liquidation – is not considered as the last alternative which used in real life. According to multivariate model of Altman Coleco’s Index of bankruptcy values are provided in the table below.
Exhibit 7. Calculation of Altman's z-score model
|
1980 |
1981 |
1982 |
1983 |
1984 |
1985 |
1986 |
1987 |
Working Capital/Total Assets |
0,459 |
0,414 |
0,453 |
0,226 |
0,209 |
0,471 |
0,179 |
0,044 |
Retained Earnings/Total Assets |
0,165 |
0,078 |
0,157 |
-0,016 |
-0,205 |
0,162 |
-0,188 |
-0,197 |
EBIT/Total Assets |
0,292 |
0,135 |
0,299 |
-0,052 |
-0,229 |
0,233 |
-0,199 |
-0,197 |
Market Value of Equity/Total Liabilities |
0,979 |
0,914 |
0,480 |
0,230 |
0,028 |
0,347 |
-0,013 |
-0,136 |
Sales/Total assets |
2,056 |
1,791 |
1,785 |
1,249 |
1,992 |
1,952 |
0,847 |
0,942 |
Index of Bankruptcy |
4,388 |
3,392 |
3,823 |
1,465 |
1,216 |
3,722 |
0,134 |
-0,012 |
Since the Z-score in 1986 and 1987 is far below from 1,2 the firm has a high probability of being bankrupt. So, if there’s no opportunity to improve Coleco’s financial position and increase earnings liquidation would be an only alternative.