Synopsis: Loss Analysis

Synopsis: Loss Analysis

The Worldwide Rental Tool Company faces several potential auto liability losses. This is a basic summary of the frequency and severity of losses to expect in the future. The forecasted loss occurrence for the first half of 2006 is 12.31 and the average amount of each loss will be $6573.97.The maximum probable loss for the first half of 2006 is $8203.62. The total forecasted amount of loss for the first half of 2006 is close to $80,988.8484 assuming that the companies total miles driven will be close to last 4 periods average of 194411.75. The total maximum probable loss is $246,145.2704.

The company’s net cash flow average of $90,000 is relatively low when compared to the maximum probable loss they face. The forecasted average of the losses faced by the company in the first half of 2006 are much higher than the given average cash flow. If the company’s cash flows are consistent from year to year, then they will have no way of retaining their expected losses and must consider alternative ways to finance losses. They will only be able to cover a portion of their losses in the event they face the maximum probable loss of $246,145.2704. If there are no alternative ways to finance losses then the existence of the company will be severely threatened.

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