financial distress

(noun)

a term used to indicate a condition when promises to creditors are broken or honored with difficulty.

Related Terms

Examples of financial distress in the following topics:

  • Financial Management Before and During Bankruptcy

    • To avoid the negative impacts of bankruptcy, individuals and companies in financial distress can implement certain financial management techniques.
    • Financial Management before and during Bankruptcy is an effective method for companies and individuals to remedy financial distress and insolvency.
    • To avoid the negative impacts of bankruptcy, individuals and companies in financial distress have a number of bankruptcy alternatives.
    • For a company, there are many options of avoiding financial distress, including:
    • Devise a management plan when a company is in financial distress

  • Striking Agreements to Avoid Bankruptcy

    • Debt restructuring is a process that allows a company or individual in financial distress to reduce and renegotiate its delinquent debts in order to improve or restore liquidity and continue its operations.
    • These deals typically occur with large companies in financial distress, and often result in these companies being taken over by their principal creditors.

  • Times Interest Earned Ratio

    • Times Interest Earned Ratio = (EBIT or EBITDA) / (Required Interest Payments), and is indicative of a company's financial strength.
    • The Times Interest Earned Ratio is used by financial analysts to assess a company's ability to pay its required interest payments.
    • The higher this ratio, or the more EBIT a company can produce relative to its required interest payments, the stronger the company's creditworthiness and overall financial health are considered to be.
    • Typically, a Times Interest Earned Ratio below 2.5 is considered a warning sign of financial distress.
    • The Times Interest Earned Ratio is an indication of a company's overall financial health.

  • Commodities and Other Futures

    • Futures traditionally have been linked to commodities such as wheat, livestock, copper, and gold, but in recent years growing amounts of futures also have been tied to foreign currencies or other financial assets as well.
    • Commodity futures are a form of "derivative" -- complex instruments for financial speculation linked to underlying assets.
    • This growing trade caught the attention of regulators and members of Congress after some banks, securities firms, and wealthy individuals suffered big losses on financially distressed, highly leveraged funds that bought derivatives, and in some cases avoided regulatory scrutiny by registering outside the United States.

  • Trade-Off Consideration

    • It states that there is an advantage to financing with debt—the tax benefits of debt, and there is a cost of financing with debt—the cost of financial distress including bankruptcy.
    • Of course, using equity is initially more expensive than debt because it is ineligible for the same tax savings, but becomes more favorable in comparison to higher levels of debt because it does not carry the same financial risk.

  • What Happens in Bankruptcy

    • Individuals or entities undergoing financial distress may be forced to consider bankruptcy.
    • The principal focus of insolvency legislation and business debt restructuring practices is not on the elimination of insolvent entities but on remodeling the financial and organizational structure of debtors experiencing financial distress, so as to permit the rehabilitation and continuation of their business.

  • Obsessive-Compulsive Disorder

    • Obsessions are characterized as persistent, unintentional, and unwanted thoughts and urges that are highly intrusive, unpleasant, and distressing (APA, 2013).
    • These compulsions can be alienating and time-consuming, often causing severe emotional, interpersonal, and even financial distress.
    • Their idea of their "ideal self" would not include the symptoms of OCD, and therefore the disorder causes a lot of distress.

  • Financial Leverage

    • Financial leverage is a technique used to multiply gains and losses by obtaining funds through debt instead of equity.
    • Financial leverage is a general term for any technique to multiply gains and losses.
    • The concept of financial leverage is much more utilized and understood in the realm of corporate finance.
    • Financial leverage tries to estimate the percentage change in net income for a one percent change in operating income.
    • This is a situation in which a company or individual enters into financial distress and is forced to enter into a higher leveraged position.

  • Equity Theory

    • Equity theory proposes that individuals who perceive themselves as either under-rewarded or over-rewarded will experience distress, and that this distress leads to efforts to restore equity within the relationship.
    • Partners do not have to receive equal benefits (such as receiving the same amount of love, care, and financial security) or make equal contributions (such as investing the same amount of effort, time, and financial resources), as long as the ratio between these benefits and contributions is similar.
    • When individuals find themselves participating in inequitable relationships, they become distressed.
    • The more inequitable the relationship, the more distress individuals feel.

  • Economic Conditions

    • By 1890, the level of agrarian distress was at an all-time high.
    • This high level of agricultural distress led to the birth of several farmer movements, including the Grange movement and Farmers Alliances.
    • Conservative groups and the financial classes, on the other hand, believed that such a policy would be disastrous.
    • Railroad bonds, the most important financial instrument of the time, were payable in gold.
    • The financial panic of 1893 heightened the tension of this debate.