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Essay / Research Paper Abstract
This 4-page paper discusses how a company determines readiness to declare bankruptcy for reorganization purposes. The essay touches on some financial models that forecast bankruptcy including the univariate financial ratio and MDA. Bibliography lists 2 sources.
Page Count:
5 pages (~225 words per page)
File: D0_MTfinban.rtf
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Unformatted sample text from the term paper:
far from that myth, however. A corporation that files for bankruptcy (known as filing Chapter 11 in the United States) is seeking relief from creditors so that necessary corporate reorganizations
can take place and financial instruments re-examined. Yet making the decision to file for Chapter 11 isnt one that is just made
arbitrarily. A company that is losing money is not necessarily going to file for Chapter 11 - rather, this company will cut costs and work toward increasing sales in hopes
that things will get better. When it comes to determining if Chapter 11 is necessary, accountants and CFOs go through a great deal of financial analysis and determination to find
out if declaring bankruptcy is, indeed, the best way for a company to go. This paper will examine some financial factors and tools that can determine if a company is
tottering on the edge of bankruptcy. First of all, in most countries, there are two tests for a corporation determining bankruptcy (BBC,
2001). A company that cant pay its debts because there isnt enough money in the bank could declare bankruptcy (BBC, 2001). In another scenario, a company with liabilities (i.e., what
is owed) that exceed assets (i.e., what is owned) is also likely to be tipped toward bankruptcy (BBC, 2001). This latter, which is sometimes known as "balance sheet insolvency," could
lead to liquidation of a companys assets, unless a company can negotiate fair terms with creditors (BBC, 2001). But how does a
company determine if bankruptcy is a viable option? What financial indicators and analysis take place to tell a companys chief financial officer that Chapter 11 is likely the best way
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