CREDIT RISK, WORKING CAPITAL AND BUSINESS SOLVENCY: A STUDY OF THE BRAZILIAN COPPER TRANSFORMATION INDUSTRY

Abstract

The availability of credit for an industry is directly affected directly by the insolvency index; knowing its causes helps to prevent its incidence. The objective of the paper consisted in identifying common factors that had generated the forced agreement of three companies from the Brazilian copper wires and cables industry in 2002. Identifying these causes is useful, to the measure that it serves as a learning tool for new credit ratings and for the company’s financial management. The specific objectives were to identify the causes of the insolvency of the three companies involved, to verify the contributions of the traditional and dynamic analyses of the financial statements for this identification and to elaborate a synthesis table on the coincident causes. The analyses make it possible to identify the companies’ financing and applications resources structures, as well as their operational performances in the previous five years before the forced agreement order. The ratios groups found disclosed high indebtedness, unpredictable liquidity and activity ratios, low return on capital and absence of working capital sufficient enough to keep up the companies’ operational activity. The common determinative factors of the forced agreement order were: high financial leverage, absence of return on capital and poor management of working capital.