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A situation where a firms operating cash flows are not sufficient to satisfy current obligations and the firm is forced to take corrective action. Financial distress may lead a firm to default on a contract, and it may involve financial restructuring between the firm, its creditors, and its equity investors. Definition of Terms Default Bankruptcy Financial Distress Includes default and bankruptcy, but also Threat of default or bankruptcy and its effect on the company Defined to capture the costs and benefits of using large amounts of debt finance. Insolvency Stock-base insolvency; the value of the firms assets is less than the value of the debt. Flow-base insolvency occurs when the firms cash flows are insufficient to cover contractually required payments. Formal procedure for working out default Does not automatically follow from default. Failure to meet an interest payment, or Violation of debt agreement
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FORECASTING FINANCIAL DISTRESS WITH Z SCORE There have been an increasing number of bankruptcies. Will your company go bankrupt? Will your major customers or suppliers go bankrupt? What warning signs exist and what can be done to avoid corporate failure? Prediction models can help in a number of ways: In merger analysis, it can help to identify potential problems with a merger candidate. Bankers and other business concerns can use it to determine whether or not to give a new loan (credit) or extend the old one. Investors can use it to screen out stocks of companies which are potentially risky. Internal auditors can use such a model to assess the financial health of the company. Those investing in or extending credit to a company may sue for losses incurred. The model can help as evidence in a lawsuit. Financial managers, investment bankers, financial analysts, security analysts and auditors have been using early warning systems to detect the likelihood of bankruptcy. But their system is primarily based on financial ratios of one type or the other as an indication of financial strength of a company. Each ratio (or set of ratios) is examined independent of others. Plus, it is up to the professional judgment of a financial analyst to decide what the ratios are really telling.
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How we use the Z-Score? At CRS Turnaround we apply the Z-Score to determine: The degree of distress of a troubled company i.e. is it in danger or failing. The Z-Score trend i.e. is the company heading towards the Danger Zone or Failing Zone, and how fast. Z-Score Formula 1. Original Z-Score formula for public manufacturing companies:
2. Model A Z-Score for private manufacturing companies: this model substitutes the book values of equity for the Market value in X4 compared to original model.
3. Model B Z-Score for private general companies: this model analyzed the characteristics and accuracy of a model without X5 - sales/total assets.
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X3 = earnings before interests and taxes /total Assets. It measures productivity of a companys total assets.
X4 = market value of equity/book value of total liabilities. It measures what portion of a companys assets can decline in value before the liabilities exceed the assets. X5 = sales/total Assets. It measures revenue generating ability of a companys assets. Z-Score Calculation If: Working Capital = $5,000,000 Retained Earnings = $1,000,000 Operating Income = $10,000,000 Market Value of Equity = $2,000,000 Book Value of Total Liabilities = $500,000 Sales = $15,000,000 Total Assets = $3,000,000
Working Capital / Total Assets = $5,000,000 / $3,000,000 = 1.67 Retained Earnings / Total Assets = $1,000,000 / $3,000,000 = .33 Operating Income / Total Assets = $10,000,000 / $3,000,000 = 3.33 Market Value of Equity / Book Value of Total Liabilities = $2,000,000 / $500,000 = 4 Sales / Total Assets = $15,000,000 / $3,000,000 = 5
Model A Z-Score = 0.717X1 + 0.847X2 + 3.107X3 +0.420X4 +0.998X5 = .717(1.67) + .847(.33) + 3.107(3.33) + .420(4) + .998(5) = 18.49321
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Company Profile
Kingfisher Airlines Limited (KFA): Kingfisher Airlines Limited (KFA) is the nation's largest domestic carrier, having served over 12 million passengers across 59 domestic and 8 international destinations, on about 366 daily flights, last year. The Airline has set new standards of service and customer satisfaction as manifested in the numerous awards, both national and global, that KFA has won in its six years since inception. The industry continued to benefit from strong growth in passenger traffic on the back of an improving economic environment. Capacity creation has lagged demand growth and this helped to stabilise yields. Several initiatives covering both revenue enhancement and cost management have begun to take effect. KFA recorded its first year of EBITDA profits despite the challenges occasioned by grounding of part of the fleet on account of issues with the engines (resolved before the end of the year, in cooperation with the engine manufacturer) and upward trend in fuel costs. The grounding of 14 Airbus aircraft progressively through the year resulted in a loss of 10% of the domestic capacity. However, through increased aircraft usage and sharply improved productivity, domestic passenger traffic increased by 2.6%. Ten of the 14 grounded planes were re-inducted into service before the end of the year and the rest have also been commissioned since then. The Kingfisher product is working well in the international markets that the Company serves and several new routes have been launched during the year. Recognising the unparalleled network and service standards, KFA has become the only Indian airline to be invited to a global alliance. Becoming a member - elect of ONE World, the premier global alliance comprising leading names like BA, AA etc is a feather in KFA's cap and will help accelerate the Company's global footprint. Following on the improved operating performance, the Company negotiated a debt recast with its lenders under which, a part of the bank loans have been converted into Equity and
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Our Mission
We maintain a large and up-to-date database of aviation experts and free-lance consultants. We enable the HR Managers of Airlines, Airports and Aviation Companies to: Publish their job opportunities with ease and speed Search in the database and find the most suitable candidates Benefit from our Candidates Search services We operate in accordance with the highest standards in all relationships with customers, experts, suppliers and local communities.
Our Values
Safety This is our overriding value. In our line of business, there is no compromise. Service We are all in the hospitality business; we must always seek to serve our guests and gain their trust, goodwill and loyalty. Happiness We seek to build an organisation with people who choose to be happy, and will endeavour to influence our guests and co-workers to be happy too. Teamwork We will succeed or fail as a team. Each one of us must respect our colleagues regardless of their rank, and we must work together to ensure our mutual success.
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Unique Services Kingfisher Airlines offers several unique services to its customers. These include personal valet at the airport to assist in baggage handling and boarding, exclusive lounges with private space, accompanied with refreshments and music at the airport, audio and video on-demand, with extra-wide personalized screens in the aircraft, sleeperette seats with extendable footrests, and three-course gourmet cuisine. Fleet Kingfisher Airlines was the first airline in India to operate with all new aircrafts. It was also the first airline in the country to order the Airbus A380. Kingfisher Airlines currently operates ATR 42, ATR 72 and Airbus A320 aircraft for domestic and Airbus A330s for international services. In the present time, the airline operates with a fleet of 74 aircrafts, which include 25 Airbus A320-200 aircraft, 6 ATR 42-500, 27 ATR 72-500, 3 Airbus A319100, 8 Airbus A321-200 and 5 Airbus A330-200. Delivery of A380s is due in 2010 and A350s in 2012.
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Competition
Kingfisher Airlines-Jet Airways Reduction in the Air-fare Use of Air-Deccan to counter Jet.
Collaboration
Kingfisher Air Deccan merge Cutting costs Marketing synergies Kingfisher-Indigo partners. (US-Airline)
Agitation/Strike
Jet Airways Sick-leave Air-India 50% Reduction in incentives
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Conclusion
After doing a study of this project representing on Kingfisher Airlines, I have come to a conclusion that Kingfisher Airlines is one of the largest and most widespread airlines of the country providing its services not only in India as well as outside India also. It has alliance with many other airlines in this sector. Kingfisher Airlines offers world class services to the customer at a nominal rate. The national carrier takes immense pride in having successfully played a pivotal role in making various facets of India popular with the people of the world and acting as the countrys cultural ambassador. The airline uses the services of one of the advanced plans been operated in the world. To sum up I would like to say that Kingfisher Airlines is serving its customer in an appreciated way and going to be in the list of best services providers in coming years.
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Suggestions
In this extremely competitive environment suggestions are extreme importance. Kingfisher Airlines with rich Human Resource should look forward to such suggestion and reward individual whose suggestion were actually beneficial for the Organization. Kingfisher Airlines can introduce Late bird / Night bird flights between metros Kingfisher Airlines should schedule more number of flights to and from station like Delhi, Mumbai, Chennai, Collate, Bangalore as these sectors account for high payload. Kingfisher Airlines needs to undertake aggressive Marketing Kingfisher Airlines should undertake customers satisfaction survey Kingfisher Airlines should make provisions to add up more financial benefits for its passenger Flight status should be made available through SMS New approaches should be identified and rewarded so that it serves as example for others
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Bibliography
1. www.google.co.in 2. www.flykingfisher.com 3. www.theubgroup.com 4. www.kingfisherair.in 5. www.wikipedia.com 6. www.iloveindia.com 7. www.coolavenue.com 8. www.airtravel.about.com 9. www.businesswireindia.com 10. www.thebusinessedition.com 11. www.toyota-f1.com 12. www.findarticles.com 13. www.mapsofindia.com
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