Analysis of collaterals, Financial Management

If normal operating revenues are inadequate to repay the debt, liquidation of collateral may be necessary. Corporate bonds can be either secured or unsecured by collaterals. Secured bond holders have a priority over others in case of bankruptcy. Most corporate bonds are meaning they are not secured by collateral. The suitability or appropriateness of any item or asset for use as collateral would depend in varying degrees on the following factors relating to the asset: Standardization, durability, marketability, and stability of value. Standardization refers to the worth and re-sale ability of asset, pledged as collateral, in the event of default. Durability relates to the ability of the asset to withstand wear and tear during its useful or economic life. The useful or economic life of an asset should be longer than term period of the debt. This is to ensure that the collateral will still be in useful condition and hence saleable even after the maturity of debt. Therefore, it can still be sold in the event that the borrower could not pay at maturity of the loan. Marketability refers to the depth of the market including secondary market for the collateral. Thus, assets that lend themselves to wide applications are better collaterals. Similarly, assets that have wide secondary or tertiary markets also represent better collaterals than those with little or no secondary market at all. 

Posted Date: 9/10/2012 9:25:27 AM | Location : United States







Related Discussions:- Analysis of collaterals, Assignment Help, Ask Question on Analysis of collaterals, Get Answer, Expert's Help, Analysis of collaterals Discussions

Write discussion on Analysis of collaterals
Your posts are moderated
Related Questions
How can funds be raised Funds are raised from financial markets. Financial markets is a general term used todenote markets where financial securities are teat. These markets in

Explain the distinction in the translation process among the monetary/nonmonetary method and the temporal method. Answer:  Within the monetary or nonmonetary method, every mone

Q. What is Alternative Minimum Tax? Alternative Minimum Tax (AMT) - Tax imposed to back up the regular income tax imposed onCORPORATION and individuals to guarantee that taxpay

CAPITAL STRUCTURE DEFINITION According to Gerstenberg, Capital structure refers to 'the makeup of a firm's capitalisation'.  In other way, it signifies the mix of different sou

a) Year 2 Current Ratio = 700 / 300 = 2.33 : 1 Year 1 Current Ratio = 500 / 200 = 2.5 : 1 Year 2 Acid Test = (700 - 350) / 300 = 1.17 : 1 Year 1 Acid Test = (500 - 250) / 200 =

Typically, there exist two types of bids in the treasury auction process. They are: Competitive bid and non-competitive bid. A non-competitiv

The purpose of this financial analysis is to determine the economic viability during the last five years of the Lance Company and to advise our client on whether the acquisition of

London Interbank Offered Rate (LIBOR) This is the base lending rate which is charged by banks in the London Eurocurrency market. LIBOR is the European equivalent of the U.S. pr

Assume a bank charges a 15.5% APR (annual percentage rate) on credit card holder compounds quarterly. What EAR (effective annual rate) is the bank is charging? What if they change

Why does a tax create a deadweight loss?  What determines the size of this loss? A tax makes deadweight loss by artificially increasing price above the free market level, so de