March 10, 2018
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A company’s “capital structure” is the array of its liabilities and equity. Capital structure commonly consists of three main components: working capital (or operating debt), financing debt, and equity.
Insufficient liquidity shrinks the range of options for a financially distressed business. The metaphor of a melting ice cube is often used to illustrate the situation. When the cash runs out and the company is unable to pay its employees or vendors, the ice cube has melted. The business has failed, and recoverable value has collapsed.
