In March 2012, the spread betting firm, Worldspreads Ltd, applied to go into administration. The decision was made when the company realized its cash balance of £16.6 million could not meet its liabilities of £29.7 million. The firm’s key statistics, income statement and balance sheet for a number of years are given below. Key statistics:

Income statement:

Balance sheet:

1 Assume that you had taken over the financial manager’s role in 2010. Would you have predicted that Worldspreads Limited would be in financial distress within a year? Explain.

2 Assume now that you are in 2011 and the company has experienced a torrid year. What is the Z-score for the firm? Does this give you any insight into the risk or insolvency status of the firm?

3 Now that you know Worldspreads is in financial distress, what are the different types of strategies you would follow? What do you think is most appropriate in this particular case? Explain.

Transcribed Image Text:

Turnover Profit (loss) before taxation Net tangible assets (liab.) Shareholders' funds Profit margin Return on shareholders' funds Return on capital employed Liquidity ratio (x) Gearing (%) Number of employees 31/03/2011 000 12 months Uncons. Unqualified IFRS Unqualified IFRS 13,665 11,420 -520 2,396 8,114 8,454 8,450 6,866 -3.81 -6.15 -6.13 31/03/2010 000 1.20 82.97 44 12 months Uncons. 20.98 34.90 27.65 1.26 140.64 26 31/03/2009 000 12 months Uncons. Unqualified 5,809 421 2,208 2,440 7.25 17.25 17.25 1.06 363.40 18 31/03/2008 000 12 months Uncons. Unqualified 4,187 887 3,824 2,186 21.18 40.58 21.85 1.15 210.75 15 31/03/2007 000 12 months Uncons. Unqualified 1,914 -476 1,317 1,626 -24.89 -29.29 -29.29 1.06 77.85 14