Introduction

T. H. Donaldson
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T. H. Donaldson: Morgan Guaranty Trust Company of New York

Chapter 1 in Understanding Corporate Credit, 1983, pp 1-6 from Palgrave Macmillan

Abstract: Abstract Banks take two broad approaches to analysing the credit of a company and the risk of losing money by lending to it. These have been named elsewhere as “going concern analysis” and “liquidation analysis” or occasionally “gone concern analysis”. Broadly speaking, the difference between them is that going concern analysis assumes that a company continues to operate and tries to assess how it will service its debt. Liquidation of assets, except in the normal course of business, is thus not considered a primary source of repayment. Liquidation analysis pays more attention to the value of the assets, adjusted to allow for losses due to forced realisation; if they exceed the liabilities with a reasonable margin, this is satisfactory evidence that the loan can be paid. Although both types of analysis can lead to either secured or unsecured lending, the liquidation approach tends to emphasise security more than the going concern approach.

Keywords: Cash Flow; Balance Sheet; Government Debt; Concern Analysis; Liquidation Analysis (search for similar items in EconPapers)
Date: 1983
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-349-17325-9_1

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DOI: 10.1007/978-1-349-17325-9_1

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