Bad debt definition: A debt that is not collectible and therefore worthless to the creditor. This occurs after all attempts are made to collect on the debt. Bad debt is usually a product of the debtor going into bankruptcy or where the additional cost of pursuing the debt is more than the amount the creditor could collect. This debt, once considered to be bad, will be written off by the company as an expense.
1) EX: Mr.A borrow loans from the bank to buy a car with the high interest rate. He use it to travel every day. While he still be spending a large amount of money for the loans every month with the extra interest, the value of the car eventually depreciates until it is worthless. 2 years latter, his lung cancer recurred stronger. He have
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The banks actively increased the provision for bad debts, accept reduced profits or losses.
2. the bank should have policies salary, bonus reasonable in this difficult phase
3. The State should securitize bad loans by 3 methods.
i. If the enterprise has a history of good business management, struggling on the obligation to repay the principal or by the investment projects being implemented yet operational ... may transfer part of the original debt into medium-term bonds . This is to support liquidity and help enterprises survive and develop.
ii. The second method is the overdue debt, bad debt into shares. Also, moving the position of banks was a major shareholder creditors hold a majority stake if found after corporate restructuring likely to survive and grow. According to the interpretation of VAFI, how to handle this is pretty common routine world. For Vietnam, ever had so many successful cases, will not only save businesses from the risk of bankruptcy dissolution but also preserve the banks' capital.
iii. To the basic conditions for the securitization process is successful, according to VAFI, as co-creditor banks should actively improve more communities, in collaboration with businesses to write off bad debts. At the same time, banks should use their subsidiaries as management company debt trading, securities company or fund management company to participate actively in the process of
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The Government should allow some foreign banks with strong financial strength, good corporate governance of the bank acquired weakness. The weak banks, as defined by the VAFI, the bank has weak business administration, with the NPL ratio is very high.
6. the State Bank should encourage banks to buy back really strong weak banks. However, this acquisition needs financial support from the state from the Bank.
7. Free of taxes (VAT, corporate income tax ...) for debt trading activities to promote the formation and development of market debt trading. VAFI said that the exemption from taxes on the purchase and sale of debt will reduce losses on bad debt, boosting the private investors participated in debt trading market. At the same time, implementing this solution will not make costly state budget.
8. the State should exempt corporate income tax for professional corporate bond issuance. Association of Financial Investors, said that this will reduce interest rates, and helps commercial banking system have conditions for long-term capital mobilization, rather than short-term, while promoting the process of stock of the
...ws the business to lease equipment used for farming and production. This use of financing allows Tassal to avoid a large loss of capital when purchasing equipment. Instead they are able to make periodic payments, which offer a distribution of funds rather than an initial large expenditure. Therefore Tassal is able to focus on its key activity of ensuring growth and a continued long term return for investors. By avoiding large expenditure of capital these funds can be kept, allowing for increased profits which directly affect the shareholders in the company.
"Debate on Student Loan Debt Doesn 't Go Far Enough." Applebaum, Robert. Hill (2012). Print.
Treanor, J. 2013. UK banks benefited from 38bn euro 'too big to fail' state subsidy. [online] Tuesday 17 December 2013. Available at: http://www.theguardian.com/business/2013/dec/17/uk-banks-benefit-from-massive-state-subsidies [Accessed: 14 Mar 2014].
The consistent high spending of capital equipment is the first reason why one would recommend reducing the debt to equity ratio. A company with higher levels of debt is less flexible in being able to adjust to new market demands and conditions that require the company to make new products or respond to competition. Looking at the pecking order of financing, issuing new shares to fund capital investing is the last resort and a company that has high levels of debt, must move to the equity side to avoid the risk of bankruptcy. Defaulting on loans occur when increased costs or bad economic conditions lead the firm to have lower net income than the payments on loans. The risk of defaulting on loans and the direct and indirect cost related to defaulting lead firms to prefer lower levels of debt. The financial distress caused by additional leverage can lead to lower cash flows available to all investors, lower than if the firm was financed by equity only. Additionally, the high debt ratio that Du Pont incurred also led to them dropping from a AAA bond rating to a AA bond Rating. Although the likelihood of not being able to acquire loans would be minimal, there are increased interest costs with having a lower bond rating. The lower bond rating signals to investors that the firm is more likely to default than if it had a higher (AAA) bond rating.
Globally, banks have been facing big challenges in the last few years and continue to do so. As a result of the financial crisis, the regulators have tightened the minimum capital requirements with the aims to create a more solid and shock-resistant banking system especially for the so called Global Systemically Important Banks (G-SIBs). The Financial Stability Board is expecting to raise the total loss-absorbing capacity
Organizations that decide to issue bonds generally go through a series of steps. Discuss the six steps.
What is the difference between a. and a. The argument of the debt financing being a risky venture since the proposition was to pay out to a sinking fund does not make sense. Over the course of the next seven years, CCI had a historical growth. in revenue of 9%. This growth along with the $2M tax shelter would.
Another benefit of zero-coupon bonds is its possible tax advantages. Interest on municipal zero-coupon bonds is exempt from federal income taxes and, in many cases, free from state and local taxes. Because municipal zeros offer the benefit of compound interest free from federal taxes, they provide returns that are often much higher on a net basis than comparable taxable securities. ‘Zeros purchased prior to April 1993 and held to maturity are not subject to capital gains tax unless they are purchased at a price lower than the compound accreted value (CAV). The sale or excha...
In order to maximise firm value under this model, the firm should seek to borrow until that tax benefit from an extra £1 of borrowing equals the cost arising from increased likelihood of financial distress. It is clear that this theory regards the capital structure as highly relevent to firm value, and supports a real world scenario more strongly than M&M as it allows for bankruptcy costs. On an empirical level this perhaps explains why there are differences in capital structures between different
Also, if possible actions should be taken to ease the worries of existing bondholders and institutional investors. Management may consider sharing the debt more equally between the two divisions in an effort to prevent downgrading of the credit rating and loss of investors.
From the perspectives of the concept and nature of tax avoidance, it is a type of tax regime used to help citizens reduce tax payable for their own benefits by using different methods within the law with a full disclosure of fundamental information around tax issues. It suggests that tax avoidance does not against law. Therefore, for citizens who want to minimise the tax that they have to pay and maximise their own savings, avoiding tax within the rules set out in law is acceptable and is a rational behaviour.
prices. At some point it may be more profitable for them to sell their bond than to keep it until
A variety of groups are concerned in bank profitability for various reasons. The bank shareholders would want to know if the value of their investments is high or low. The investors also use current and past performance to predict future price of the banks’ shares traded on the stock exchanged. The management of the bank as trustee of the shareholders is evaluated and compensated on the basis of how well their decisions and planning have contributed to growth in assets and profits of their banks. Employees of bank also are concerned with profits, since their salaries and promotions are frequently tied to the profitability performance of their banks. Depositors use bank performance and profitability as indicators of security for their deposits in the banks. Finally, business community and general public are concerned about their banks’ performance to the extent that their economic prosperity is linked to the success or failure of their banks.
By analyzing how the banks conduct their traditional function, there rises a question of why the borrowers and lenders do not choose direct deal with each other? Which leads to the consideration of the theoretical rational for the existence of banks. This analysis is presented in section 3, which have an intensive expatiation in the theories. In section 4, what are the problems if the direct deals between the borrowers and lenders happen, and how can banks solve those problems are presented therefore answer the question why individuals are willing to pay the intermediation costs.
Tax expenditures are popularly known as tax loopholes or tax breaks. It departures from the normal tax structure and ...