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Copy of Chapter 16: BUSINESS FAILURE, REORGANIZATION, AND LIQUIDATIO
Transcript of Copy of Chapter 16: BUSINESS FAILURE, REORGANIZATION, AND LIQUIDATIO
Working Capital to Total Assets
Retained Earnings to Total Assets
Earnings Before Interest and Taxes to Total Assets
Market Value of Equity to Book Value of Debt
Sales to Total Assets
Chapter 16: BUSINESS FAILURE, REORGANIZATION, AND LIQUIDATION
CLASSES OF FAILURES
CAUSES OF FAILURE
REMEDIAL ASTIONS FOR BUSINESS FAILURE
All industrial and commercial enterprises that are petitioned for bankruptcy in the courts
Concerns which are forced out of business through such actions in the courts as foreclosure, execution, and attachments with insufficient assets to cover all claims
Concerns involved in actions in courts and other government agencies (like the Securities and Exchange Commission and the Central Bank) such as receivership, reorganization, or arrangement;
Voluntary discontinuance with known loss to creditors; and
Voluntary compromises with creditors out of court
Is an attempt to keep the firm going. It may be achieved through formal proceeding called “reorganization”, or voluntary agreement.
Occurs when a firm dissolves and ceases to exist and it’s assets are sold. It may be accomplished through a voluntary agreement called “assignment” or a formal proceeding called “liquidation under bankruptcy”.
This happens when the firm’s revenues no longer cover costs
It could be external or internal.
This happens when the firm becomes insolvent or is unable to pay it’s debts
EXTERNAL CAUSES OF FAILURE
Changes in government regulation or contracts;
Burdensome taxes or tariffs;
Legislation unfavorable to the specific type of business or to business in general.
Strikes or boy cotts;
Dishonest employees; and
Disaster or “acts of God)
INTERNAL CAUSES OF FAILURE
Overcapitalization in debt;
Undercapitalization in equity;
Inefficient management of income;
Improper costing with excessive expenditures;
Errors of judgment concerning problems or expansions;
Inefficient pricing decision; and
Inability to improve a weak competitive position
SYMPTOMS OF FAILURE