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Recognizing the Signs of Financial Distress

Diagnosing financial distress, and the ability to address the relevant issues, is a necessary role of board members and senior executives. This article examines the types of distress, how to measure it versus how the capital markets measure it, and some of the tools and solutions a company has to address the issues during times of stress.

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Financial distress is when a company is vulnerable in its ability to maintain its financial commitments related to operating expenses (i.e., timely vendor payments, leases and payroll), debt holders (i.e., lenders, noteholders), and capital expenditures.

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