The Financial Failure
From a financial point of view, a company is considered as failing if it meets cash flow problems and if it is incapable to meet its commitments. Malecot (1981), respect that the financial failure intervenes when the exploitation cannot face any more the current liabilities by means of its available asset.
If the profitability is insufficient, the exploitation of the company is threatened, because she cannot pay any more stockholders’ equity at the current rates on the market. In these conditions, it will be less easy for the firm to get itself new stockholders’ equity because she is not capable of paying them. She will have to request then a new credit line to assure continuation of her activity.This appeal to outside heads, will pull additional financial charges which them will contribute to damage his financial results. Also, the company can know problems of liquidity in the case or its availability of the operation is not enough to cover all spending (Ball and al., 2010).
According to Ooghe and Van Wymeersh (1990), the insufficiency of the added value and the excessive weight of the loads of structure are at the origin of the lack of profitability of the company. She finds no more solution to pay its debt, what is translated by incidents of payment. According to Derni and Crucifix (1992), the financial activity of the firm becomes insufficient because she cannot assure any more stockholders’ equity the current rates on the market; confronted with such a situation the company does not any more manage to be self-financed because it is not any more capable of attracting new financiers.