Liquidation Assessment through Strategic Financial Statement Analysis Essay

Liquidation Assessment through Strategic Financial Statement Analysis - Essay Example The present research has identified that the year 2009 witnessed liquidation of 19,077 companies as per the figures of the insolvency service representing an increase of 23% from the year 2008. and out of 19,077, 6,335 companies have been declared insolvent. According to Adam, the figures are 13,434 as voluntary liquidations and 5,643 are compulsory liquidations totaling 19,077 as per the above report. Again in the UK, Red Flag Alert says that more than 140,000 were showing signs of financial distress in q4 2009. The figure is 6 % higher than Q3 2009 but 14 % lesser than the identical period in 2008. The corporate failures seem to unstoppable despite fiscal support by the Government, VAT reductions by 2.5% and the HRMC’s payment support for  £ 4.2 bn covering 242,000 ‘time-to-pay arrangements’. The U.S.based Circuit City, second largest retailer of electronics next to Best Buy went into liquidation of its last retained store after series of one liquidation after another in early 2009 rendering their final tally of 30,000 of employees jobless. One commentator has said that it was a well deserved as a poorly managed company. Needless to say, a recession has been responsible for this state of affairs. Recessions are considered a process of the plumbing of economics that removes the inefficient entities and paves way for reallocation of capital and labor to the most deserving entities. The faster the reallocation, the safer the investments. The three ways in which insolvency is dealt with are the liquidation, rescue, and workout. Liquidation is the process administered by the court for sale of the assets of the insolvent firm in piecemeal. A rescue is again a court intervention for rehabilitation, reorganization or restructuring of the insolvent firm with the objective of preventing its liquidation. A workout is an informal process where a court has no role and the creditors either reschedule their debts or allow settlement of debts at a disco unt.