How is it possible for a company to show positive net income but go bankrupt?

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Sam Raja Nadar

CA-Inter Cleared (Accounting Technician Executive)

The company may have more debtors due to which its income rises but the amount to be received decreases and it may go bankrupt if the amounts are not duely received from debtors hence it is said to maintain 2:1 ratio
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Helping hand

I t is possible in two ways ; one is deterioration in working capital(i.e increasing in accounts receivable and lowering accounts payable) and another reason may be financial shenanigans acts or actions designed to mask or represent the true financial performance or actual financial position of the company....
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I t is possible in two ways ; one is deterioration in working capital(i.e increasing in accounts receivable and lowering accounts payable) and another reason may be financial shenanigans acts or actions designed to mask or represent the true financial performance or actual financial position of the company. Financial shenanigans can be result of the creative interpretation of the accounting rule to outright fraud over many years! read less
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Prof. Mahendra Yadav (Get in touch for Accounts, Finance and Commerce subjects)

In Europe: One of the main reasons companies, with a positive net. income, going bankrupt is when banks stop the credit facilities of the company. Due to the current crisis banks are cutting credit facilities, and for the company going to another bank is impossible, because they do not give credit...
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In Europe: One of the main reasons companies, with a positive net. income, going bankrupt is when banks stop the credit facilities of the company. Due to the current crisis banks are cutting credit facilities, and for the company going to another bank is impossible, because they do not give credit facilities either. Example: Dozens of NL farmers went bankrupt because Deutsche Bank stopped with all small-business related loans in NL, and the farmers could not find any other bank to take over the credit facilities. read less
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Bankruptcy is related to covering of liabilities with assets.Company with positive income may not be able to settle debt if it has insufficient assets
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