%0 Journal Article
%T Financing a Loss
%A David Rakowski
%A Eahab Elsaid
%J Accounting and Finance Research
%D 2012
%I 
%R 10.5430/afr.v1n1p53
%X When companies have a net loss accompanied by negative operating cash flows, they must decide how to handle the financing deficit, or, stated differently, they must decide how to finance the loss.  By examining a large sample of firms with net losses, we document how companies respond to the financing shock that occurs with negative cash flow.  For companies with a one-year loss, current assets decrease and current liabilities increase.  While we observe that leverage ratios increase during a loss year, this increase has more to do with decreasing book equity than an increase in long-term debt.  However, when the loss persists into a second year, companies make more fundamental changes, often downsizing by decreasing fixed assets and by issuing longer term debt.
%U http://www.sciedu.ca/journal/index.php/afr/article/view/894