When a corporation is in financial difficulty or in danger of bankruptcy, an infusion of cash or a line of credit (a bailout) can assist in making the corporation more viable. Sometimes cash or credit is given to another viable corporation so that it can purchase a floundering company with real and/or potential assets. The merging of these two companies can often create an even more viable corporation and thus drive up stock values, which could increase assets and provide more working capital.
Government bailouts have been around for a long time. What happens when governments provide bailouts is that a failing corporation is granted a cash infusion or line of credit with the understanding that when the company starts generating profits again, the government is paid back or is in some way compensated for the bailout.
Despite in-depth analysis and the best prognostic skills employed in trying to calculate the best methods to rejuvenate or resurrect a corporation on the brink of bankruptcy, failure often happens. There are no guarantees. A multiplicity of factors can contribute to the success or failure of a corporation. There often is no magic bullet.
Bailout is a word no one wants to hear in our present economic state. Everyone questions whether the costs are worth the benefits and even if there are any real benefits to propping up failing corporations. Once we get through this economic crisis, generations may pass before anyone suggests that the government should try to assist corporations on the brink of bankruptcy.
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“Despite in-depth analysis and the best prognostic skills employed in trying to calculate the best methods to rejuvenate or resurrect a corporation on the brink of bankruptcy, failure often happens.”
One could argue that this is because business fail for a reason, and any amount of bailout or stimulus is temporary and artificial. Once the infusion is spent, the original problems resurface, forcing the business to fail. A bailout is no substitute for a good business plan.