√ 11 Definition of Bankruptcy, Causal Factors and Indicators
11 Definition of Bankruptcy, Causative Factors and Indicators – In this discussion we will explain about bankruptcy. The discussion includes the notion of bankruptcy put forward by several experts, factors causing bankruptcy and bankruptcy indicators which will be discussed in full and easy to understand.
11 Definition of Bankruptcy, Causative Factors and Indicators
For more details, please see the review below carefully.
Definition of Bankruptcy According to Experts
The following is a summary of the meaning of bankruptcy from experts.
1. Brigham (2012:2-3)
The definition of bankruptcy according to Brigham is a failure that occurs in a company which can be interpreted by:
- Economic Failure (Economic Distressed), is a condition where the company loses money or the company's income is unable to cover its own costs, this means that the profit rate is less than the cost of capital or the present value of the company's cash flows is less than obligation. Failure occurs when the actual cash flow of the company is far below the expected cash flow.
- Financial Failure (Financially Distressed), is a condition of the company where there is difficulty in funding both in terms of funds in terms of cash or in terms of working capital. Some asset liability management plays a very important role in the arrangement to prevent financial failure. Financial failure can also be interpreted as insolvency which distinguishes between cash flow basis and stock basis.
2. Law Number 4 of 1998 concerning Bankruptcy
The definition of bankruptcy according to Law Number 4 of 1998 concerning Bankruptcy is a situation that is declared bankrupt by a court decision.
3. Toto (2011: 332)
The definition of bankruptcy according to Toto is Bankcruptcy is a condition where a company is no longer able to pay off its obligations. This condition usually does not just appear in the company, there are early indications from the company that can usually be recognized earlier if the financial statements are analyzed more carefully in some way certain. Financial ratios can be used as an indication of bankruptcy in a company.
4. Lesmana (2003: 174)
The definition of bankruptcy according to Lesmana is uncertainty about the ability of something the company to continue its operational activities if the financial conditions that are owned experience decline.
5. KBBI (Big Indonesian Dictionary)
The definition of bankruptcy according to KBBI is the state of bankruptcy of a company because it is unable to pay its debts and so on.
6. Martin in Fahkrurozie (2007: 15)
The definition of bankruptcy according to Martin is as follows:
- Economic Failure (Economic Distressed)
Economic failure means that the company loses money or the company's revenue is unable to cover its own costs, this means that the profit rate is less than costs capital or the present value of the company's cash flows is smaller than the liabilities, failure occurs when the company's actual cash flows are far below the stated cash flows expected. - Financial Failure (Financial Distressed)
The definition of financial distressed has the meaning of difficulty in funding both in the sense of funds in the sense of cash or in terms of working capital. As asset liability management plays a very important role in the arrangement to prevent financial distress. Bankruptcy will quickly occur in companies that are in countries that are experiencing economic difficulties, because of difficulties the economy will trigger the faster bankruptcy of companies that may have been sick before and then get sicker and worse bankrupt.
7. Prihadi (2008:177)
The definition of bankruptcy according to Prihadi is a condition in which a company is no longer able to pay off its obligations.
8. Darsono (2005:165)
The definition of bankruptcy according to Darsono is the failure of a company to run a company's operations to generate profits.
9. Gitman (2012:738)
The definition of bankruptcy according to Gitman Bankruptcy is business failure that occurs when the started value of a firm's liabilities exceeds the fair market value of its assets
10. Hadi (2008)
The definition of bankruptcy according to Hadi is often called company liquidation or company closure or insolvency.
11. Wikipedia
The definition of bankruptcy according to Wikipedia is the legally stated inability by an individual or organization to pay their creditors.
Factors Causing Bankruptcy
There are three factors that cause bankruptcy stated by Sartono (1994), namely:
- If a company is unable to meet its maturing obligations, but the company's assets are worth more than its debts, because the company is facing technical insolvency.
- If the company's asset value is less than the company's debt value because it is facing legal insolvency.
- Companies that face bankruptcy if they cannot pay their debts and are declared bankrupt by the court.
According to Reny (2011: 28), there are several factors that cause bankruptcy in general, including:
- Economic Factors: In the economic field are symptoms of inflation and deflation in the prices of goods and services, financial policies, interest rates and devaluation money in relation to foreign money and also balance of payments, surplus in relation to foreign trade country.
- Social Factors: The influence of social factors on bankruptcy is more on changes in people's lifestyles that affect demand for products and services or the way companies relate to employees.
- Technology Factor: Using information technology can cause the costs to be borne by the company to be especially high for maintenance and unplanned implementation, the system is not integrated and the user manager is lacking professional.
- Government Factors: Governments that have a policy against subsidizing companies and industries are subject to tariffs changes in the export and import of goods, new policy laws for banking or labor and etc.
- Customer Factors: A company must identify the nature of consumers, in order to avoid losing consumers, as well creating new opportunities, finding new customers and avoiding sales declines and preventing consumers from turning away to competitors.
- Supplier Factor: Companies and suppliers must work well together because of the supplier's power to increase price and reduces the buyer's profit depending on how much the supplier is related to the trade free.
- Competitor Factro: If a competitor's product is more accepted by the public, then the company will lose consumers and this will result in a decrease in the company's income, for this reason, competition should not be forgotten.
Bankruptcy Indicator
In a company, if bankruptcy will occur, it can be predicted with indicators. According to Hanafi (2003: 264) These indicators are:
- Current or future cash flow analysis
- Corporate strategy analysis, is an analysis that focuses on the competition faced by the company.
- Cost structure relative to its competitors.
- Management quality
- Management ability to control costs.
According to Fahkrurozie (2007:18), corporate bankruptcy can be found in several managerial and operational signs or indicators, such as:
- Business Environment Indicators
Low economic growth can be an important indicator of weak business opportunities, especially if at the same time many new companies are entering the market. The size of a certain company could be the cause of the shrinking of other companies. - Internal Indicators
If management cannot make business forecasts with any analytical tool used, it is difficult for management to develop a proactive attitude. More likely to be reactive and because of this are usually late to anticipate change. - Combination Indicator
Companies often go bankrupt due to the interaction of threats originating from the business environment and weaknesses originating from the company's own environment. If this is caused by both, it will bring more complex consequences than caused by just one.
Thus has been explained about 11 Definition of Bankruptcy, Causative Factors and Indicators. Hopefully it can add to your insight and knowledge. Thank you for visiting, don't forget to read our other articles.
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