Financial Distress

A state in which a corporation can’t meet, or has trouble paying off, its monetary obligations to its creditors. The chance of financial suffering increases when a firm has elevated fixed costs, illiquid assets, or revenues that are vulnerable to economic slumps. A corporation under financial distress can incur costs related to the situation, such as more costly financing, opening costs of projects and less valuable employees. A company’s expense of using extra financing will usually increase, making it more difficult and luxurious to raise the much-needed assets. To meet short-term obligations, managing might pass on cost-effective longer-term ventures.