First of all, one of the reasons why Clive Peeters Ltd collapsed is because of the company was unable to repay the debt to the creditors. Debt and equity ratio is used to demonstrate how many debts the company uses to finance its assets in proportion to the value of shareholder's equity. According to Clive Peeters's debt and equity ratio (total liability/total equity) in 2008 is 2.18 and in 2009 is 2.17. This ratio is relatively higher compared to one of it's biggest competitor such as Harvey Norman. Harvey Norman's debt and equity ratio in 2008 is 0.72 and in 2009 is 0.78. It clearly shows that Clive Peeters's debt and equity ratio is higher than Harvey Norman, which indicates that the company highly depends on debt for their current business activities. The high debt and equity ratio shows that the company has a higher chance of being unable to repay their own debt. Additionally, the high debt and equity ratio have also lead to the rejection of additional funding from National Australia Bank to Clive Peeters. The bank refused…show more content… GFC had debilitated the real income of the household and the unemployment rate has also increased, therefore there will be a significant decrease in household consumption. All these are related to the collapsed of Clive Peeters because in early 2008 Clive Peeters's debt level has increased significantly due to borrowing loan to expand their business activities. The increase in debt level is normal but GFC had weakened the consumer's sentiment. GFC has caused the debt becomes a burden to the company because the economy goes down the households will stop buying luxury items such as plasma television and etc. In this case, the company will not able to generate more sales to pay off its own debt. Based on the 2009 annual report, even though the company managed to recover 16 million dollars from the fraud but the company sales still
