Answer to Question #151683 in Finance for Mohammed Najib

Question #151683
Taeh Company has following financial information:
- Total Assets: Rp 2 Billion
- EBIT: Rp 600 Million
- Fixed Assets: Rp 1 Billion
- Short Term Debt: Rp 550 Million
- Book value of equity: Rp 1.2 Billion
- Accumulated retained earnings: Rp200 Million
- Sales: Rp1.8 Billion
- Stock Price: Rp1,200
- Shares outstanding: 1,100,000
According to financial distress theory, give your argument about the company financial condition? Why do we need to analyse the financial distress of a company?
1
Expert's answer
2020-12-17T09:32:41-0500

Taeh Company financial condition is due to high fixed cost, revenue sensitive to economic downturns, and a large degree of illiquid assets.

We need to analyse the financial distress of a company for it to serve as a whistle-blowing mechanism to corporate the administration to initiate remedial measures and avoid potential bankruptcy.



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