How to structure liquidity / turnaround case?

case structure Liquidity restructuring Turnaround
New answer on Dec 04, 2020
2 Answers
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Anonymous A asked on Dec 03, 2020

Hi, how would you structure this, and what do you think of this structure?

Situation / question: Client is hit from external effect, is bleeding cash, needs cash short-term, and also thinks that not all of his businesses are profitable anymore. How to turn the situation around (short- and mid-term)?

Possible structure:

Short-term: Liquidity / cash management

  • Investigate situation / objective
    • Info sources: BS, IS, CFS
    • Important KPIs: cash ratio, quick ratio, current ratio; Fin. CF, Op. CF, Inv. CF
    • How long to survive? How much additional CF is needed?
  • Generate cash (also structure regarding CFs possible, i.e. Fin. CF, Op. CF, Inv. CF)
    • Supplier, e.g. stop to pay
    • Customer, e.g. factoring
    • Employees, e.g. layoff
    • FIxed / current assets, e.g. de-invest
    • ...

Mid-term: Turnaround / restructuring

  • Investigate situation: analyze market, analyze strengths and weaknesses of company (value creators, value destroyers)
  • Restructure
    • Invest in value creators, de-invest in value destroyers
    • Restructure core-competencies and processes
    • Restructure organization and culture
  • Improve further: profit opportunities (revenue opportunities, cost opportunities)
  • Plan and implement

(edited)

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Clara
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Content Creator
replied on Dec 04, 2020
McKinsey | Awarded professor at Master in Management @ IE | MBA at MIT |+180 students coached | Integrated FIT Guide aut

Hello!

Overall I agree, particularly with the split in short term-medium term for the problem.

However, this would not appear like this as a case. If you see the Library of cases, you can find much more real ones -particularly the ones made by coaches-.

Hope it helps!

Best,

Clara

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Ian
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Content Creator
replied on Dec 04, 2020
MBB | 100% personal interview success rate (8/8) and 95% candidate success rate | Personalized interview prep

Hi there,

This is a fantastic framework. Well laid out.

However, I would add a few things, particularly in the short term fixes segment:

  • Restructure debt (longer-term debt and/or lower interest rates)
  • Issue debt/equity (improve cashflow)...especially w/ current interest rate landscape
  • Reduce accounts receivable
  • Increase accounts payable

Overall, well done!

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Clara gave the best answer

Clara

Content Creator
McKinsey | Awarded professor at Master in Management @ IE | MBA at MIT |+180 students coached | Integrated FIT Guide aut
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