Purpose

Apply corporate finance concepts to a real public company showing signs of financial distress. Your job is to diagnose the problem, evaluate its severity, and make an evidence-based recommendation.

Objectives

Identify financial and nonfinancial warning signs of distress.

Analyze liquidity, leverage, profitability, and cash flow using real company data.

Explain the likely causes of distress using both financial evidence and business context.

Assess the firms survival prospects and likely strategic outcome.

Make a recommendation supported by analysis, not opinion.

Project Overview

This is an team-based research project in which you will evaluate one real publicly traded company that appears to be in financial distress. Your analysis should combine financial statement analysis, recent market or news evidence, and strategic reasoning. You are not simply describing poor performance. You are evaluating whether the company faces a serious risk of restructuring, bankruptcy, acquisition, or turnaround.

Step 1: Select a Company

Choose a U.S. publicly traded company that shows signs of financial distress in the past five year. You may choose your own company or use one assigned by the instructor. (Large firms that encountered financial distress in the past five years include Rite Aid, Spirit Airlines, and WeWork, Tupperware Brands and Bed Bath & Beyond.)

Good candidates often have one or more of the following characteristics:

• Negative earnings or repeated losses
• Declining sales or margins
• Weak cash balances or negative operating cash flow
• Heavy debt burden or near-term debt maturities
• Layoffs, restructuring, asset sales, covenant pressure, going-concern warnings, or bankruptcy headlines

Suggested Data Sources

Use credible, traceable sources. At a minimum, you should rely on the companys SEC filings and supplement them with market or business sources.

Recommended sources include:

• SEC EDGAR: 10-K, 10-Q, 8-K, proxy filings, debt disclosures
• Annual reports and investor presentations
• Earnings press releases and earnings call summaries
• Yahoo Finance, Macrotrends, or Koyfin for market data and trend charts
• Major business news sources for recent restructuring or distress developments

Step 2: Gather Evidence

Collect enough information to evaluate the company over time rather than based on one quarter alone.

You should gather at least the following:

• Three years of income statement data
• Three years of balance sheet data
• Three years of cash flow statement data
• Recent stock price performance
• Debt information, including maturity timing if available
• At least three recent news items or disclosures related to distress

Step 3: Complete the Analysis

Your report must address each of the following sections clearly and professionally.

A. Company Background

Briefly describe what the company does, what industry it operates in, and why it appears distressed. Include the company name, ticker, headquarters, core business lines, and any major recent developments that frame the case.

B. Evidence of Financial Distress

Identify and explain the main warning signs. Go beyond saying the company is ‘doing badly.’ Show why the evidence points to distress.

Possible indicators include declining revenue, negative EBIT or net income, shrinking cash, negative operating cash flow, weak coverage ratios, debt coming due, credit downgrades, auditor concerns, restructuring announcements, layoffs, or major asset sales.

C. Ratio and Trend Analysis

Compute and interpret relevant ratios. At a minimum, include measures of liquidity, leverage, profitability, and debt-servicing ability.

Suggested ratios: current ratio, quick ratio, debt-to-assets, debt-to-equity, interest coverage, operating margin, net margin, return on assets, and operating cash flow to current liabilities.

Do not just report numbers. Explain what the ratios imply and whether the trend is improving or worsening.

D. Cash Flow Analysis

Discuss whether the company is generating enough cash to support operations, service debt, and fund investment needs.

Pay special attention to operating cash flow, free cash flow, capital expenditures, and financing dependence.

E. Causes of Distress

Diagnose the likely causes of distress. Separate symptoms from underlying causes.

Examples of causes include excessive leverage, poor acquisitions, shrinking demand, cost inflation, industry disruption, legal problems, weak execution, or an unsustainable business model.

F. Survival and Valuation Assessment

Assess the companys ability to survive over the next 12 to 24 months.

Questions to consider: Can it refinance? Can it raise equity? Does it have valuable assets to sell? Is restructuring likely? Is the equity still meaningful, or does debt dominate enterprise value?

You may include simple valuation evidence such as market capitalization trends, enterprise value comparisons, Altman Z-score, or debt-versus-firm-value discussion.

G. Final Recommendation

Give one clear conclusion and defend it with evidence.

Your conclusion should choose the most likely path: recovery, turnaround with restructuring, acquisition target, high bankruptcy risk, or likely failure/liquidation.

Recommended Report Structure

Section	What to Include	Suggested Length	Points
Company background	Business description, industry, why the company appears distressed	0.5-1page	10
Distress evidence	Warning signs from filings, ratios, and recent developments	1 page	20
Financial analysis	Liquidity, leverage, profitability, and cash flow analysis	1 pages	25
Causes of distress	Diagnosis of underlying reasons	1 page	15
Survival assessment	Ability to refinance, restructure, or recover	1 page	15
Recommendation	Final conclusion supported by evidence	0.5 page	15

Required Deliverables

• 1. A written report, approximately 5-6 pages, excluding exhibits
• 2. A presentation of about 68 minutes (TBA)
• 3. An appendix with supporting tables, ratio calculations, and source list

Presentation Expectations

• Introduce the company and explain why you selected it.
• Highlight the most important distress warning signs.
• Present the most meaningful financial findings rather than too many ratios.
• Explain your conclusion clearly and professionally.
• Use visuals such as trend charts, ratio tables, or a brief debt-maturity summary.

Grading Rubric

Category	What Strong Work Looks Like	Weight
Evidence of distress	Uses specific and convincing indicators from statements, disclosures, and current developments	20%
Financial analysis	Ratios and trend analysis are accurate, relevant, and well interpreted	25%
Diagnosis of causes	Distinguishes between symptoms and underlying causes of distress	20%
Recommendation quality	Final conclusion is clear, realistic, and supported by evidence	20%
Communication and professionalism	Writing, formatting, citations, and presentation quality are polished and credible	15%

Submission Checklist

I selected a real publicly traded company and explained why it appears distressed.

I used at least three years of financial statement data where available.

I included at least five meaningful ratios and interpreted them.

I discussed recent distress-related developments using credible sources.

I explained the causes of distress, not just the symptoms.

I made one clear recommendation about the companys likely future.

I attached exhibits, calculations, and a source list.

I include all my team members’ name on my submission.

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