Predicting a Firm’s FInancial Distress: The Merrill Lynch Co. Statement of Cash Flows Harvard Case Solution & Analysis

During the night of September 14, 2008, a couple hours before Lehman Brothers closed down, Merrill Lynch declared defeat: it was acquired by Bank of America (BofA). Uncertain of its own capability to continue as a stand-alone entity, Merrill Lynch deliberately ended 90 years of autonomy. Before its buyout by BofA, Merrill Lynch was the world's largest and most broadly accepted stockbroker. It reigned retail stockbroking world with its military of 16,000 brokers around the globe. At the start of 2008, Goldman Sachs, Merrill Lynch, Morgan Stanley, Lehman Brothers and Bear Stearns were the five largest standalone investment banks, with a combined complete history of 549 years: within the span of six months, they all would be gone.

Some observers wondered whether any early signals of the financial distress the investment firm experienced in 2008 could be seen in the financial statements published in the years preceding the acquisition of the giant. Additionally, was there an evaluation of the efficiency of the organization from an approach other than that of managing results, which is usually used by financial analysts, worthwhile? Particularly would there be value in an assessment of the company's performance by scrutinizing application and the origin of its liquid assets for the years 2005, 2006 and 2007. This kind of investigation has necessitated focus on the statements of cash flows, for example, need to: evaluate the cash situation at year-end;analyze cash flows provided (used) by operating activities;examine cash flows provided (used) by investment activities;and, assess cash flows provided (used) by financing activities.

Predicting a Firm's FInancial Distress The Merrill Lynch Co. Statement of Cash Flows Case Study Solution

PUBLICATION DATE: May 30, 2012 PRODUCT #: W12114-PDF-ENG

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