What Is Asset Deficiency?

Asset deficiency is a situation where a company's liabilities exceed its assets. Asset deficiency is a sign of financial distress and indicates that a company may default on its obligations to creditors and may be headed for 澳洲幸运5官方开奖结果体彩网:bankruptcy.

Asset deficiency can also cause a publicly traded company to be delisted from a stock exchange. A company may be involuntarily delisted for failing to meet minimum financial standards. When a company no longer meets listing requirements, the listing exchange will issue a warning of noncompliance. If the company fails to address and correct the issues outlined in the warning, the company's 澳洲幸运5官方开奖结果体彩网:stock may be delisted.

Understanding Asset Deficiency

While a company may experience a temporary or short-term asset deficiency, there are usually warning signs that indicate the 澳洲幸运5官方开奖结果体彩网:financial distress is much more serious and could lead to the company's failure. Reviewing a company's 澳洲幸运5官方开奖结果体彩网:financial statements over a few years can help investors get a clearer picture of the company's current health and future pro♑spects.

Key points to look for would be negative cash flows in the 澳洲幸运5官方开奖结果体彩网:cash flow statement. Negative cash flow could be a sign that managers are not efficient at using the company's assets to generate revenue. Poor sales growth and🐎 declining sales over a period of time could i🧸ndicate insufficient demand for a company's products or services.

Investors should also review a company's debt load, which can be found on the 澳洲幸运5官方开奖结果体彩网:balance sheet and represents the amount of debt the company is carrying on its books. High fixed costs combined with a high 澳洲幸运5官方开奖结果体彩网:debt load and income insufficient to ꦰpay liabilities are all red flags that a company's financial health is in jeopardy.

Asset Deficiency and Bankruptcy

A company that has a chance at recovering financially may file for Chapter 11 bankruptcy, under which the company is restructured, continues t▨o operate, and attempts to regain profitability. As part of a Chapter 11 reorganization plan, a company may choose to downsize its business operations to reduce expenses, as well as renegotiate its debts.

In a worst-case scenario, asset deficiency may force a company to liquidate as a means to pay off its creditors and bondholders. The company would file for 澳洲幸运5官方开奖结果体彩网:Chapter 7 bankruptcy and go completely out of business. In this situation, shareholders are the last💯 to be repaid, and they may not receive any money❀ at all.

If a company succeeds with its restructuring in Chapter 11, it will typically continue operating in an efficient manner under its new debt structure. If it is not successful, then the company will likely file for Chapter 7 and 澳洲幸运5官方开奖结果体彩网:liquidate.

Example of Asset Deficiency

Following the 澳洲幸运5官方开奖结果体彩网:financial crisis of 2007-2008, many U.S. companies struggled to stay afloat, finding themselves with li🌄mited assets and growing liabilities. While many succumbed to asset deficiency and folded, others opted for Chapter 11 restructuring and some eventually reemerged from bankruptcy as profitable businesses.

Two of Detroit's 澳洲幸运5官方开奖结果体彩网:Big Three automakers—Chrysler and General Motors—filed for Chapter 11 protection in 2009. Despite closing thousands of dealerships and laying off tens of thousands of employees, neither company could survive the dramatic decline in new car sales brought about by the Great Recession. The U.S. Treasury ended up bailing out both car companies through loans from the 澳洲幸运5官方开奖结果体彩网:Troubled Asset Relief Program (TARP).

By 2012, however, the fortunes of Chrysler and General Motors had turned around significantly. Both companies repaid their bailout loans and enjoyed a rebound back into profitability.