Analysis of collaterals, Financial Management

Assignment Help:

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. 


Related Discussions:- Analysis of collaterals

Example on controlling working capital, Q. Example on Controlling working c...

Q. Example on Controlling working capital? Describe how a manufacturing company could control its working capital levels and impact of the suggested control measures. Solut

Leverage, What are the importance of leverage on a small scale firm?

What are the importance of leverage on a small scale firm?

Determine the factors of auditors, Determine the factors of auditors Wh...

Determine the factors of auditors When anticipating to apply analytical review as a substantive procedure, auditors determine a number of factors like: Factor

Why use the modified du pont system to calculate roe, Why would an analyst ...

Why would an analyst use the Modified Du Pont system to calculate ROE when ROE may be calculated more simply? Explain. In fact, an analyst would not use the Modified Du Pont equ

What are the financing methods, Q. What are the financing methods? - Th...

Q. What are the financing methods? - The export transaction could be correlated to a bill of exchange. If this bill was established (guaranteed) by the bank it could be discoun

Important features floating rate notes, Reference Index Every FRN choos...

Reference Index Every FRN chooses its own reference index upon which the calculation of each successive new coupon is based. The most commonly used reference index is LIBOR. It

Define the cash budget, Q. Define the Cash Budget? Cash Budget: - A cas...

Q. Define the Cash Budget? Cash Budget: - A cash budget is an estimation of cash receipts and cash payments for a future period of time. It is prepared to predict the cash requ

Determine the change in profit, (a) The BEQ is 200 customers per month, i.e...

(a) The BEQ is 200 customers per month, i.e. $3,000 / ($20 - $5) (b) The margin of safety is 300 customers, i.e. 500 - 200 (c) Graph (d) New break-even is 334 customers, i

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd