Thirumalai Chemicals Limited — financial distress indicators

Interest coverage (EBIT / interest) is -1.33×.

When EBIT < interest, debt service is funded from cash reserves or new borrowing — the classic precursor to payment default and covenant breach.

At the current free-cash-flow burn, cash covers ~1 months.

Going-concern standard: management must assess ability to continue for 12 months (Ind AS 1 ¶25–26). Runway below that horizon forces dilution, asset sales or default.

Merton distance-to-default 0.78 σ → PD 22%.

Structural (Merton/KMV) model: equity is a call option on assets; low distance-to-default means assets are close to the default point.

Current ratio is 0.61 (current assets cover 61% of near-term obligations).

Cash-flow insolvency test: inability to pay debts as they fall due is the trigger for both U.S. involuntary petitions and Indian IBC default.

Net income negative in 3 of 3 fiscal years.

Persistent losses erode equity and the capacity to absorb shocks.

Debt is 46% of assets while EBITDA is not positive.

With no operating earnings, repayment depends entirely on asset sales or fresh capital.

Operating cash flow negative in 2 of the last 3 years.

A business that cannot fund itself from operations depends on external capital to survive.

O-score 1.90 → model probability 87%.

Ohlson (1980) logit model of 1-year corporate failure; O > 0 (p > 50%) is the original failure cut-off.

Revenue changed -15% year over year.

Falling sales reduce cash available for debt service.

Short-term debt is 9.0× cash on hand.

Maturity wall: debt due within a year must be refinanced, which is the most common proximate cause of filings.

Revenue declined every year for three years.

Structural, not cyclical, decline.