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Bankruptcy - Essay Example

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Summary
Bankruptcy indicates the declaration of ineligibility from the company to repay its debt to creditors, and is filed in the court of law. In another way when the company are unable to make payments to the creditors then they can file bankruptcy protection in the court of law…
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Bankruptcy
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Download file to see previous pages If Quick ratio, Current ratio and Times Interest Earned ratio are negative then this is an indication that the company faces liquidity problems and the creditors are not satisfied with the company's financial performance and also the creditors will not issue more debt in future (Tenk).
If the company's cash outflows are higher than the cash inflows then this is an alarming situation for the company. It gives also the indication that there is any mismanagement exists in the company's operating, investing and financing activities (Tenk).
1. Implication on Current Asset: Current assets are reviewed critically after the announcement of bankruptcy. All the necessary payments to the creditors are made through sales of those assets. (Main Effects of Petitioning for Bankruptcy).
2. Implication on Future Assets: After bankruptcy, the company loses its money with respect to the payments made to the creditors and the money left is insufficient in order to acquire back the assets, to start running the business again in future. Moreover, time value of money and the factor of inflation also make a significant impression on the future assets. (Main Effects of Petitioning for Bankruptcy).
3. ...
All the necessary payments to the creditors are made through sales of those assets. (Main Effects of Petitioning for Bankruptcy).
2. Implication on Future Assets: After bankruptcy, the company loses its money with respect to the payments made to the creditors and the money left is insufficient in order to acquire back the assets, to start running the business again in future. Moreover, time value of money and the factor of inflation also make a significant impression on the future assets. (Main Effects of Petitioning for Bankruptcy).
3. Implication on Future Credit: The element of bankruptcy also brings about a curse for the company as it then faces difficulty in acquiring additional debt for its future business operations. Because of bankruptcy the company's goodwill and credit ratings are also negatively impacted (Main Effects of Petitioning for Bankruptcy).
PROS AND CONS OF BANKRUPTCY
The advantages of bankruptcy are stated below:
After filing the bankruptcy, the creditors are legally bound to stop all activities of debt collection.
Filing for Bankruptcy give sthe company a fresh financial start
In most of the bankruptcy cases certain categories of propertys like home, life insurance and car, are exempted in order to repayment of debt to creditor.
The disadvantages of bankruptcy are stated below:
Declaration of bankruptcy distorts the image and goodwill of the company.
In near future the company faces difficulty financing their expenses by acquiring more debt.
Due to the bankruptcy, the company's stock prices fall and there is an implication on ceasing the future business operations.
Due to the effect to bankruptcy, the company loses control over its property (Bankruptcy Pros and Cons).
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