Henkel SPIC India Limited, which started its operations in India in 1987, is a joint venture between Tamil Nadu Petroproducts Limitedone of the companies of SPIC Groupand Henkel of Germany. The joint venture was named as Henkel SPIC India Limited, popularly known as HSIL. However, since 2001, the company is reeling under a financial crunch and suffering heavy losses. Against this backdrop, the case study examines the financial distress of Henkel SPIC India Limited, using the Altman Z-score model. It also measures the financial performance of HSIL, using certain key ratios/indicators. However, the scope of the case is restricted to measure the company's insolvency position and does not venture to find the reasons responsible for the company turning weak.
The
core aim of a business is to generate profit and
by extension, maximization of wealth. In this process,
however, a firm might experience financial problems
due to various reasons. These financial factors
lead to, what we refer as, financial distress. Wruck
(1990) defines financial distress as "a situation
where a firm's operating cash-flows are not sufficient
to satisfy current obligations (such as trade credits
or interest expenses), and the firm is forced to
take corrective action."
There
is vast literature available, which has devoted
significant attention to issues of measuring, avoiding,
and consequences of financial distress. The works
of Beaver (1967), O'Neill (1986), Robin and Pearce
(1992) and Amanda Allmon (2004) reveal a wide range
of research on this issue. But when it comes to
predicting the insolvency of a firm, Edward I Altman
proposed a model that combines certain important
financial ratios and came up with the Altman Z-score
model. |
