Question

Many companies file for bankruptcy, but, how many actually survive? What do you think the deciding factor in surviving when there is more debt than revenue for a company. Did they intentionally over-leverage their assets?

Answer 1

Bankruptcy protection is the legal option chosen by any firm which allows it time bound process to reorganize or restructure the business to reduce the debt and reclaim the status of 'going concern'.
The large corporations have also filed the bankruptcy protection and around 70% survive because their size and so the ability to attract the investors. However, this is not true about the small firms which have survival rate of only around 10%.

The company could survive the bankruptcy but the important factor is the debt burden. The debt needs to be serviced and the company should have assets or product portfolio which can generate sustainable sales over the period so the debt can be repaid. The management should be visionary enough to understand what to be sold off and what should be retained or developed to create a cash cow.

The management has three segments generally. The operational, middle level or tactical and the strategic level. The strategic management is responsible for deciding the course of the organization in the future and developing action plan accordingly. It may include setting up new plants, acquiring business, entering in a new business. The company needs to raise the capital for that and it can either riase through equity, debt or hybrid method.
In the time of booming economy, the firms are strategically correct to have leverage but if the situation chnages then the over leverage will erode the cash flow through interest payment and may even force the company imnto bankruptcy.