financial distress

financial distress The situation in which the activity of a business is influenced by the possibility of impending insolvency. The costs of distress can be divided into those related to bankruptcy and those incurred without bankruptcy. The costs of bankruptcy are those directly incurred in winding up or restructuring the business. The costs short of bankruptcy are those arising from a sudden change in suppliers’ and customers’ behaviour, prompted by their concerns over dealing with a potentially insolvent firm. They also include costs engendered by the diversion of managerial focus and conflicts between stakeholders, notably managers, debt holders, and shareholders. As a firm increases the level of its debt or gearing, so the costs of financial distress will rise (and hence the cost of funding). The costs of financial distress are an important factor in determining the firm’s level of gearing.

• accounting package
• accounting period
• accounting principles
• accounting rate of return
• accounting ratio
• accounting records
• accounting reference date
• Accounting Standards Board
• accounting technician
• account management group
• account payee only
• account reconciliation
• accounts
• Accounts Modernization Directive
• accounts payable
• accounts receivable
• accrual
• accrual accounting
• accruals concept
• accrued benefits
• accrued benefits method
• accrued charge
• accrued income scheme
• accumulated depreciation
• accumulated dividend