Financial Distress: Bankruptcy Essay -- Economy, CNN Money, Kmart

H eitherey 1Financial Distress Bankruptcy Financial suffering which results in nonstarter are very common for businesses in straight offs economy. According to CNN Money Fortune 500, Last year attach the highest number of billon-dollar bankruptcies ever recorded. And corporate bankruptcies have continued at an marvelous clip, with about twice the number of businesses filing for bankruptcies filing for bankruptcy security in the 12 months ending June 2010, as they did during the same span of sentence in 2008, 2007, or 2006. (Roane, 2010) It is very key for every financial tutor to acknowledge that bankruptcy can be a reality for all company and financial managers have to know how to prevent it. Most all companies have debts and these debts are used for financial leverage, but they have to be closely monitored by the financial manager. Man y monthly debts that companies are set about with are, making monthly relentments to vendors, and paying employees. It is the financial managers to manage and monitor these debts, so that the debts dont become more than the equity. (Ross, Westerfield, & Jordan, 2010) Companies will be considered in financial distress when all of their liquidity has to be used to pay their outstanding debt. Companies can file bankruptcy to deal with and manage the neediness of liquidity. When a company files bankruptcy the company is protected and bondholder or creditors cannot process them for money that is owed. According to the authors of Fundamentals of Corporate Finance, In principal a firm becomes bankrupt when the value of its assets equals the value of its debt. (Ross... ...s trying to compete with Wal-Mart and take on similar name brands, and prices, which became detrimental to Kmart. (CNN Money.com, 2002) According to CNNMoney.com Kmart filing include Kmart, which has about $37 billion in annual revenue, said it had secured $2 billion in debtor financing to pay its $1.6 billion in debt and expected to emerge from bankruptcy in about a year. (2002) Kmart wanted to emerge from restructuring with a new image that was totally different formula their competitors and by filing bankruptcy and reorganizing their organizations they were able to do that.Conclusion In order for a company to prevent any type of bankruptcy a company will need to keep its assets lower than his debt. It is important for financial managers of a company to manage a companys debt-equity ratios while still increasing leverage within the company.