Thomas Cook Group PLC, a long-established travel company, was experiencing financial distress in 2012 as evidenced by a negative Altman Z-score and high debt levels. The company was selling off assets and closing stores to raise cash as it faced losses due to decreased consumer spending and increased competition. Although the company gained some market confidence back by 2013, its financial position in 2012 indicated it was at risk of bankruptcy without restructuring.

1. Thomas Cook Group PLC Financial Distress

2. STUDENT INFORMATION DETAILS – GROUP-4
Names
Vivek Yadav
Michael Shinzaki
Utkarsh Ranjan
Rohit Kumar
Rashmi Sinha
Roll No.
GDEC12IBWM066
GDEC12CMM018
GDEC12IT092
GDEC12IT082
GDEC12IT081
E-mail
vivekY.gdec12@spjain.org
Michael.gdec12@spjain.org
Utkarsh.gdec12@spjain.org
Rohit.gdec12@spjain.org
Rashmi.gdec12@spjain.org

3. Financial Distress
Financial distress is a situation in which the firm is unable or faces difficulty in paying
off its financial obligations and if the conditions aren’t improved upon, it could also lead to
bankruptcy. For our analysis we have chosen Thomas Cook Group PLC (LSE: TCG). Thomas
Cook & Son was an established and well renowned brand and has been in existence since the
1800’s. Thomas Group Plc was created in 2007 by the merger of Thomas Cook AG and
MyTravel Group Plc. Our five parameters for financial distress are as follows:
Altman Z score (for non-manufacturers)
The Z score value gives the probability of a firm getting bankrupt within the next two
years. If the value of the Z score is lower than 1.8 for a private sector company, it is said to be in
the distress zone. Based on our calculations, the Z score value of Thomas Cook was -0.987 for
the fiscal years ending in 2012 which means that the company has higher chances of bankruptcy.
The weaker Z score can be attributed to the negative working capital, poor asset turnover, net
losses etc.
Mountains of Debt
Mountains of debt are piling in the company’s balance sheet. The total debt to equity
ratio has increased from 103.8% to 272.7% in 2012. Before the global financial crises Thomas
Cook was sitting on a cash pile of 394 million pounds. In the wake of the crises, the market
condition deteriorated it faced a cash crunch and the company had to take massive short term and
long term debt financing in 2011 and 2012 to be afloat.
Business & Operational Losses
The euro zone crisis along with the rise of competitors such as Expedia and budget
airlines has led to significant business and operational losses for the company. Due to increasing
stiff competition the company is getting squeezed. The gross profit margins are 21.8% for 2012
and the EBIT margin is extremely thin at 1.8%. Selling General and administrative expenses are
taking a company for the run. Out of the last five years, the first two the company earned a net
income of less than 1% and in the last three it has steadily and drastically increasing net losses.
Selling of Operational Non-Current Assets
On 12 July 2011, the Group announced its intention to dispose of certain hotel and
surplus assets, which are expected to generate net proceeds of up to £200m over a six to eighteen
month period. On 29 September 2011, the Board announced its decision not to declare any
further dividend payments whilst the Group re-builds its balance sheet. Over 500
underperforming performing were removed from the portfolio and since October 2011 149 stores
have been closed, including head office properties and one – sixth of the company will be let
gone. It also returned six aircraft back to the lessors. In 2012 the Cash flow from investments

4. increased by 52 million as around 180 million of divestitures and property plant and equipment
were undertaken.
Dramatic loss of confidence in the market by sudden plunge in share price.
Because of the cash crunch in 2011, market lost confidence in 2011 and the stock price
dropped almost 90% from 200 pounds to 20 pounds. Thomas Cook immediately had to take
drastic measures to gain public confidence and take massive debts and announce restructuring
plans.
Conclusion:
Based on the above five areas we conclude that Thomas Cook PLC is financially
distressed. Reduced consumer spending coupled with stiff competition from budget airlines and
online portals is hurting the company. Miniscule operating margins and mounting levels of debt
are putting a huge dent in the net income (loss) leaving nothing for shareholders. However the
company is restructuring itself and trying every means to be able to back on its feet. Good news
is the cash problem is solved. Market has gained confidence and much of it can be seen it the
rising share price from near crises level of 20 pounds to 150 pounds in fiscal year 2012.

5. Appendix:
Z score Calculation:
Z score for non-manufacturer industrials
T1 = (Current Assets – Current Liabilities)/Total Assets
T2 = Retained Earnings/Total Assets
T3 = EBIT/Total Assets
T4 = Book Value of Equity/Total Liabilities
Year
Sales
Current Assets
Total Assets
Current
Liabilities
Total
Liabilities
Retained
Equity
Total Equity
EBIT
2012
9491.2
1524.2
5906.8
3540.1
5448.9
-1450
457.9
-319.3
Ratio
T1
T2
T3
T4
-0.341284621 0.24548 0.05406 0.084035
Values
6.56
3.26
6.72
1.05
Weight
Z Score
-0.987