Hanjin Bankruptcy Case Study

Hanjin nonstarter Case StudyAbstractOver the past five years, Hanjin ecstasy Co Ltd has maintained its ranking among the top 10 shipping companies in the world making it in 8th position in 2015 (JOC 2016), however, on 31st of August 2016, Hanjin merchant marine decl atomic number 18d nonstarter. It was clearly leading to positruptcy as go with was showing low lucrativeness and Hanjin vainly assay to increase runniness but it was too late. It is similarly said that Hanjins sectionalization was the largest and the most significant bankruptcy in the container transport industry (Paris and Nam 2016).1. entrywayThe purpose of this herald is to examine and look at factors that led to the bankruptcy of Hanjin. This report is divided into two parts. In the first part the stemma insure published by the alliance forget be utilize to identify 4 factors which led to the Hajin transit collapse to give and hit the books the image of liquidity and profitability. The second part will focus on cash budget went in 2014 and et sequitur.2. Factors that resulted in Hanjin Shipping crash quaternion outputs were chosen from Hanjin Shipping Co Ltd financial results two from Balance weather sheet and two from Profit and passage narration in order to formulate the bankruptcy. Those outputs are up-to-the-minute As notes (comparing to the trustworthy Liabilities), Borrowings, reduction of Profitability and Profit from cease Operations.2.1 Factors in Balance rag weekLiquidity, according to Subramanyam and antic (2009), is companys capacity to apace convert the current assets into cash or to derive cash to fall into place its short-term obligations. The companys activity whitethorn be affected seriously if thither is a neediness of liquidity. Therefore, liquidity expresses the capacity of the company to comply with its short-term obligations, for instance, to meet expenses with ample cash inflows or to accumulate a security reserve for any incalculable si tuation such as payments growth. Consequently, liquidity may be defined as the factor that designates the ability of the company to transform assets into cash or to obtain cash to keep up with the short-term obligations.2.1.1 Current Assets and Current LiabilitiesCurrent Assets are assets that are pass judgment to be converted into cash, sold or consumed indoors short issue of time, usually one year (Subramanyam and Wild 2009). Current assets generally entangle cash, trade receivable, inventories and prepaid expenses.Current Liabilities are obligations expected to be well-provided usually within one year (Subramanyam and Wild 2009). Current liabilities in balance sheet accounts ordinarily include trade payable, short-term bank borrowings, taxes and accrued expenses.First of all, the key point in the Balance Sheet (B/S) is the difference in coat amongst Current Assets and Current Liabilities (960 million and 4 036 billion of won respectively in 2015). It is also important to credit entry that Current Assets built up only 13% of summarize Assets in 2015. Besides, the short-term Borrowings was the main output which drove the Current Liabilities so in high spirits (3 171 billion of won in 2015 what is 78,6% of Current Liabilities and 60 times much than core Comprehensive Income that year). Furthermore, the distance in percentage between Current Assets and Current Liabilities was enlarging since 2013. In particular, Current Assets went down by 35% in 2015 since 2014 and by 47% since 2013, while Current Liabilities declined only by 18% in 2015 since 2014 and by 32% since 2013. This is the root cause of insolvency, as Current Assets were not sufficient to come over Current Liabilities.2.1.2 Long-term BorrowingsNon-current (or long-term) liabilities are obligations that come due in more than one year (or the in operation(p) cycle) and include borrowings, bonds and debentures (Subramanyam and Wild 2009). Long-term Borrowings are type of debt and financial obligations issued for the duration of several (3-5 or more) years (Matassa 2011). Any financial liabilities or bonds include in long-term loan are expected to be reimbursed in a longer than 12-month period.In the Hanjins report (2015), long-term Borrowings grew up by 20% in 2015 since 2014 what means that preliminary long-term loans were not sufficient in order to run adequately. Moreover, Borrowings were composing over 95% of do Non-Current Liabilities in 2015, and 45% of total borrowings during the same year what comparing to the previous year (2014) grew by 13%. The situation was aggravating due to lack of liquidity and consequently, the ability to repay the loans. Too much of Borrowings finally resulted in loss of confidence by banks who refused future debt services.2.2 Factors in Profit and Loss account2.2.1 Reduction of complete(a) ProfitReduction in profitability may be another cause which triggered a reject for farther accrediting by banks or other investors causing er osion of equity what consequently ended with the actual collapse of Hanjin. In the Profit and Loss account (P/L), Sales went down by 9% in 2015 from 2014 comparing to Gross Profit which reduced by 14% in 2015 from 2014. This means that in the possible future, company could become less profitable (if the trend will continue) and go into losses again, as it was in 2013, where Gross Loss was accounted for 260 billion of won and Total Comprehensive Loss for 670 billion of won. Regarding to all listed outputs, it may be additionally supposed that the company was losing its paying capacity what may be another factor of bankruptcy.2.2.2 Profit from quit OperationWhat is more, expression at the P/L, the Profit from Discontinued Operations suggested the slippage (141 billion of won in 2014 and 0 in 2015) joined together with losses amass over the past years (2 251 billion of won in 2015) had done for(p) the companys equity.2.3 Evaluation of the effect on the financial resultAll in all, it can be said that the Liquidity was low due to incapableness of Current Assets to overcome Current Liabilities and continuous Long-Term Borrowings. Profitability was also hardly struggled because of reduced Gross Profit and sudden losses from Discontinued Operations. Combining all afore-mentioned factors and taking into consideration the amount of accumulated losses, the size of total remained Equity was smaller than share capital by 34% in 2015 (the situation, however, was better than in 2014 where the distance was accounted for 38% but regrettably for Hanjin not enough to solve the issue). As a result, the outcome of state factors became the rapid decline of Hanjins financial sustainability which consequently led to companys insolvency and crash.3. BudgetingP/L account (Y0)JanFeb bollocks upAprMayJunJulAugSepOctNovDecSales revenues525559655553575964677074Cost of sales-29-31-34-36-31-29-33-34-35-36-37-39Salaries -10-10-10-10-10-10-10-10-10-10-10-10 electricity-3-4-5-5-2-2-2-3-3- 5-6-7Depreciation-2-2-2-2-2-2-2-2-2-2-2-2 early(a) overheads-3-3-3-3-3-3-3-3-3-3-3-3Total expenses-47-50-54-56-48-46-50-52-53-56-58-61Profit5559777711111213LegendFrom previous Year rock-bottom inventories change magnitude sales electricity policyPayables policy3.1 interchange Budget for Y0 (2014)Cash Budget (Y0)JanFeb muck upAprMayJunJulAugSepOctNovDecTrade Receivables655255596555535759646770Trade Payables-35-29-310-34-36-28-26-30-31-35-36Salaries-10-10-10-10-10-10-10-10-10-10-10-10Electricity-3-4-500-600-500-15Overheads-3-3-3-3-3-3-3-3-3-3-3-3Total payments-51-46-49-13-47-55-41-39-48-44-48-64Cash Surplus14664618012181120196Opening Balance50647076122one hundred forty140152170181201220Closing Balance647076122140140152170181201220226LegendFrom previous YearReduced inventoriesIncreased salesElectricity policyPayables policy3.2 P/L Forecast for Y+1 (2015)P/L forecast (Y+1)JanFebMarAprMayJunJulAugSepOctNovDecSales revenues555862685856606265687175Cost of sales-29-31-34-36-28-26-30-31-35- 36-37-39Salaries wages-10-10-10-10-10-10-10-10-10-10-10-10Electricity-9-6-5-15Other overheads-3-3-3-3-3-3-3-3-3-3-3-3Total expenses-42-44-56-49-41-45-43-44-53-49-50-67Profit13146191711171812192183.3 Cash Budget for Y+1 (2015)Cash Budget (Y+1)JanFebMarAprMayJunJulAugSepOctNovDecTrade Receivables745558626858566062656871Trade Payables-37-39-29-31-34-36-28-26-30-31-35-36Salaries wages-10-10-10-10-10-10-10-10-10-10-10-10Overheads-3-3-3-3-3-3-3-3-3-3-3-3Electricity00-900-600-500-15Total payments-50-52-51-44-47-55-41-39-48-44-48-64Cash Surplus24371821315211421207Opening balance226250253260278299302317338352373393Closing Balance2502532602782993023173383523733934003.4 Effects of Initiatives on profitability and liquidityThere is more cash available for expenditure on other business opportunities such asPay forward a loanTake advantage of newly opportunitiesAdoption of new technologiesIncreased efficiency on operations.Implication of new assumptions for Y+1 as well as consideration of th e changes that were applied in the Y-0 eventually allowed achieving positive results for the company. First of all, when comparing cash budget Y-0 and Y+1 it becomes possible to see that due to the introduction of new proposals overall expenses within Y+1 were maintained relatively close to expenses within Y-0. Moreover, assumptions that were set for the Y+1 allowed further increasing the overall profitability of the company and achieving final amount for closed balance of 347. Furthermore, implications that were introduced in Y-0 and were present in Y+1, such as electricity costs policy and provider policy, also made a significant push in term of boosting the overall performance of the business during the Y+1 period. All in all, initiatives that were proposed and incorporated proved to be efficient and had a significant impact on the companys performance.4. ConclusionTaking everything into account, all the implementations that were made within Y-0 and Y+1 have proven to be succe ssful in footing of allowing the company to expand its capital. As it can be seen from the calculations provided in the report the company experienced a steady growth of shares which can be used as a support to the previous statement. Finally, the decisions which were made regarding Braemer Shipping Ltd created a positive effect on the business simultaneously screen background the ground for the companys future expansion.Reference ListHanjin Shipping (2015) Business ReportHunter L. (2017) Lecture, functional at (Accessed 10 March 2017)JOC (2016) Hanjin Shipping Bankruptcy, Available at http//www.joc.com/special-topics/hanjin-shipping-bankruptcy (Accessed 2 February 2017)Paris C. and Nam I.-S. (2016) Move by South Koreas Hanjin Shipping Roils Global Trade, Wall Street Journal, Available at https//www.wsj.com/articles/troubled-hanjin-shipping-to-sell-healthy-assets-to-rival-1472611190 (Accessed 2 February 2017)Subramanyam K. R. and Wild J. J. (2009) Financial Statement Analysis, 10 th edition, McGraw-Hill/Irwin New YorkMatassa F. (2011) Museum Collections Management A Handbook, look Publishers