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 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 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.
The company can stop their entire delivery operation, but that will result in a total loss of