The Use of the DuPont Formula and a Bankruptcy Forecasting Model in Court Proceedings: Reorganization versus Liquidation Decisions.

The number of bankruptcy filings in the energy/petroleum sector has recently soared worldwide due to the slowdown of the Chinese economy. A more general increase occurred because of the severe economic downturn resulting from the real estate crisis, which started in 2007-2008. U.S., U.K. and E.U. law all provide for some sort of bankruptcy reorganizations but the legal details as well as the practical results vary. Voluntary reorganizations are far more common in the U.S. Given the court procedures specified by the 1978 Bankruptcy Reform Act, the ultimate decision to reorganize the business or liquidate the assets hinges on whether the bankruptcy court confirms a plan to allow the firm to continue in existence. That requires that it is deemed to be a viable entity during the proceedings. Two powerful tools of financial management can be an important help in this process. The DuPont formula sheds light on key variables that influence profitability, and the Altman Z Score Model has been used many times to forecast the coming financial distress and failure of many types of manufacturing and transportation companies. Both can also be used to plan a turnaround, as will be documented in this paper. [ABSTRACT FROM AUTHOR]