CB Ltd, a ten-year-old company, has been manufacturing web cameras. Although they had a promising start, they are now facing potential bankruptcy due to various financial challenges.

• Insolvency

  • Definition: The inability of a company to pay its debts as they come due, or when its liabilities exceed its assets.
  • Example: Imagine you have a friend, Sam, who owes $1000 to various people but only has $500 and no way to earn more. Sam is insolvent because he can't meet his debt obligations.

• Bankruptcy

  • When a company can't pay its debts and seeks legal protection against creditors. It can lead to reorganization or liquidation.
  • Example: Imagine a famous restaurant that couldn’t pay rent due to declining sales. To protect itself, it might file for bankruptcy, either to restructure its debts and continue operating or to sell off assets and close down.

• Initial Success

  • Started with web cameras production.
  • Quickly grew and was valued at a whopping $75 million during the tech boom.
  • Think of this like the newest, coolest tech startup that everyone's talking about!

• Challenges

  • Sales growth = Slow but consistent. Like a turtle, not a hare.
  • Rising cost of raw materials 📈 = Higher production costs = Less profitability. It's like if you started baking cookies for sale, but the price of flour and chocolate chips skyrocketed.
  • More advertising expenses for their latest designs. Think about Apple splurging on advertising when a new iPhone launches.
  • Financial problems lurking 🚨 = On the brink of insolvency. Like that time you spent too much on video games and didn’t have enough for your phone bill.

• Financial Director's Possible Solution

  • Declaring bankruptcy. A drastic measure, akin to hitting the emergency stop button on a train.