SW 1-3 Flashcards
Financial Crisis:
Strategic Reasons (5)
(Internal Issues)
Misjudgment of future sales markets and procurement markets;
Wrong corporate strategy or unsatisfactory realization of such strategy;
Misinvestments (Product development; operating assets; real estate; acquisitions; foreign subsidiaries etc.);
Unsatisfactory corporate management (BOD, Management);
Intransparent corporate structures / inappropriate organizational structures
Financial Crisis:
Finanical Reasons (8)
(Internal Issues)
Drop in sales; unsatisfactory Cash Flow;
Bad debts / inappropriate level of reserves for bad debts;
Not enough provisions for risks;
Excessive investments (over-investing);
Excessive cost structures;
Excessive inventory levels; overstatements of inventories;
Thin equity base; non risk conform equity;
Misleading financial reporting.
Financial Crisis:
Operational Reasons:
(Internal Issues)
Corporate Culture; Management stile; «calculated optimism»
Missing management tools (intransparency);
Suboptimal operational structuring (unclear; risky; inefficient etc.)
Inappropriate risk management;
Under-qualified staff (issues with selection, education, personnel turnover);
Quality issues (products / services);
Delays in delivery.
Financial Crisis:
Operational Reasons: External Issues
Economic cycle
Technological changes
Market compression (competitors / substitutes);
Unforeseen events:
- loss of an important business relationship;
- insolvency of a client or a supplier
- drastic changes on raw material / energy / capital – markets
- exchange rates;
- economic shocks;
- trade barriers;
- loss of key personnel (know how).
Symptoms of a crisis
Strategic Crisis
- Lower order inflow / shrinking order books
- high infrastructure cost
- drop in sales
- price wars
- loss of market share
- over capacities
- low productivity
Symptoms of a crisis
Profitability Crisis
- higher deducations (Abzüge)
- lower operating margin
- unsatisfactory equity level
- low quality of costing
- droping EBITDA /EBIT
- escalating use of credit lines
- rising trade accounts payable (FLL)
- management / staff turnover up
- lack of ressources
Symptoms of a crisis:
Liquidity Crisis
- permanent full use of credit lines
- over-drawing credit lines (Überziehungskredit)
- inability to take deductions (Skonto)
- payment hold-up (Zahlungsaufschub)
- escalating need for information of creditors
How does the general crisis model look like?
What is an adverse balance sheet?
(adverse = negativ)
- if a company makes losses
- it eats away equity
Adverse Balance sheet: difference between open/concealed and genuine/ not genuine?
open/disclosed:
- the loss is fully visible on the face of the balance sheet
- there are no more components to offset the loss
- Genuine (echt)
- no reserve anymore
- you can’t make the B/S look nicer
- not Genuine
- you still have hidden reserve/ disclosed reserve
- as long as you can make the B/S look nicer it is NOT genuine
concealed/ undisclosed:
- the loss is not visible on the balance sheet
- the loss has been offset, f.e. through reservations
How does the position “equity” look?
Equity:
- Shareholder’s equity
- Reserve
* Legal reserve
- Capital reserve
- general legal reserve
- revaluations reserve
- reserve for own shares
* free reserve
* statutory reserve
* retained reserve
- Profit/ Loss
How do you calculate over-indebtedness?
Either:
Equity ./. loss
- > if positive: no over-indebtedness
- > if negative: over-indebted
Or:
Total liabilities ./. total assets
- > if negative: no over-indebtedness
- > if positive: over-indebted
Art. 725 OR, Adverse Balance sheet
Without legal implications:
assets fully cover debts and at least 50% of share capital and legal reserves
With legal implications (Art. 725 OR):
Abs. 1
assets fully cover debts but less than 50% of share capital and legal reserves
Abs. 2
assets no longer fully cover the debts
—> Art. 671, 3 OR: free reserves may always be used to offset losses, also general reserve is meant to absorb losses.
Which reserves can not be recorded against a loss?
(2)
- revalutation reserves
- reserves for own shares
Für was darf die allgemeine Reserve gemääs OR Art 671, 3
nur verwendet werden?
Die allgemeine Reserve darf (soweit sie die hälfte des AK nicht übersteigt) nur zur Deckung von Verlusten oder für Massnahmen verwendet werden, die geeignet sind, in Zeiten schlechten Geschäftsganges das unternehmen durchzuhalten (…)
Which 3 Scenarios for “Adverse BS” (Capital Loss) in short?
1. Assets fully cover debts and at least 50% of shareholders capital and legal reserves
2. assets fully cover debts but less than 50% of shareholders capital and legal reserves
–> BOD call in AGM
3. assets do no longer fully cover debt
–> interim F/S
Name different things that are typical for
Profitabilty Crisis
and
Liquidity Crisis
Profitability Crisis:
- margin is shrinking
- company is making loses
- equity is shrinking
Liquidity Crisis:
- can’t pay the salary
- than everybody knows that the company is in trouble.
–> The end is near
Adverse B/S (Capital Loss)
Disclosed vs. Undisclosed
Disclosed: they show the Loss in the B/S
Undisclosed: Assets are overstated or Liab. are understated
–> the loss is not / or no fully visable
Over-indebtness
General (!)
Equity < Loss
or
Assets < Liabilites
–> Over-indebted
What does restructuring mean? And how does the concept look of restructuring?
- restructuring = turnaround
- recovery of a financially stricken economy subject
- Private Person
- Corporation
What should you check before you start the restructuring process?
ability
- does the plan have a high probability of success?
worthiness
- expected financial expense in prop. to the chances of success/ expect. corporate value?
- existing personal prerequisites? (pers. Voraussetzungen)
- Management
- Board of Directors
- are the people motivated
Excurs: What ist the IDW-S6 of Germany?
(not sure if MEP relevant)
- third party confirmation as to the feasibility of a restructuring plan
- used so that banks participate
- this report is needed if
- close to illiquidity
- insolvency
- over-indebtedness
- see more details 02a page 9
What is actio pauliana?
- it is a name of a lawsue
- treat the creditors equally
- The issues in focus are “delay in filing bankruptcy petitions” and “undue preference of a creditor”
- > if you delay it you are liable
