When a business is running and developing, a financial analyst can give an idea of the financial condition of a company to stay away from the risk of bankruptcy. As soon as signs of bankruptcy is determined, this must be addressed immediately in order to find the best solution for the success of the business.
Talking about bankruptcy is closely related to the health of a company. The health of a company itself can be described into two, namely being at the most extreme health point or being at the most extreme unhealthy point.
Bankruptcy – An Overview
The health of the company at its most extreme health point means that the company is experiencing short-term financial difficulties (liquidity) where it is only temporary and not severe. However, if not handled immediately, it will develop into non-solvable difficulties. At another point, the health of the company is at the most extreme unhealthy point where the debt position is greater than the assets. This is also called insolvable difficulty.
In circumstances that you are running a business and you are facing personal injury as a result of a car crash accident, you can get extra funds to help run your business while you are recuperating. This can come from presettlement funding or (in cases of a car accident) car accident loans against the expected settlement of the case. Talk to your legal consultant about this.
Indicators of Bankruptcy
Indicators of bankruptcy can be seen from the company’s cash flow, analysis of the company’s strategy, to the company’s financial statements. The indicators include:
- Company cash flow: cash flow analysis for the present and for the future
- Company strategy analysis: focus on the competition faced by the company, the cost structure relative to its competitors, the quality of management, the ability of management to control costs.
- Company financial statements: see how far sales can go down so the company can still make a profit, usually followed by a break-even point analysis or balance point and can also be used to predict financial difficulties.
Here are the variables that show the differences between companies that go bankrupt and don’t go bankrupt consistently:
- Rate of return – a bankrupt company has a low rate of return
- Debt – a bankrupt company has a very high debt
- Fixed payment coverage: bankrupt companies have a lower level of protection against fixed costs
- Stock return fluctuations: bankrupt companies are at higher stock return fluctuations
Bankruptcy analysis can be seen from the four variables above. Below are alternative companies can do to fix financial problems:
- Informal solutions can only be done if the conditions are not severe. It can be done by extending the maturity of debts or by composition, namely by reducing the amount of the bill by reducing debt claims. Formally resolved, carried out when the problem is very severe and creditors want to have security guarantees.
- Business Reorganization. This means changing the capital structure into a decent capital structure, this decision is taken if the company is considered to have a greater value to continue than the value if the company is liquidated. It can also be liquidated by selling company assets, this decision is taken if the company is considered to have a lower value if it is continued compared to the company’s value when it is liquidated.
No one wants to experience bankruptcy in business. Therefore, bankruptcy analysis is very useful so that companies and related parties can anticipate what is needed. If management can detect or predict bankruptcy early, at least it can make savings, for example by mergers or financial restructuring so that bankruptcy costs can be avoided.