What happens when liabilities exceed assets
When a company’s liabilities exceed its assets, it is known as a negative net worth or insolvency. This means that the company’s debts are greater than the total value of its assets.
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In such a situation, the company may face serious financial difficulties and may struggle to meet its financial obligations, such as paying its bills, employees, and creditors. The company may also find it difficult to secure financing or credit in the future.
In extreme cases, the company may need to declare bankruptcy or may force to liquidate its assets to pay off its debts. The shareholders of the company may lose their investment as a result and employees may lose their jobs.
To avoid insolvency, companies must closely monitor their financial position and manage their liabilities carefully. They should also ensure that they have adequate cash flow to meet their financial obligations, and seek professional advice if they are experiencing financial difficulties.
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