What characterizes financial distress?

Financial distress is fundamentally characterized by a company’s inability to meet its financial obligations. This includes being unable to pay debts as they come due, which can lead to the risk of bankruptcy or insolvency. Companies experiencing financial distress often face cash flow problems, increased liabilities, and may struggle to secure further financing due to their weakened financial position.

The scenarios that depict increased profitability and revenue growth, successfully meeting all financial obligations, or enjoying high levels of investor confidence and support do not align with financial distress. Instead, these scenarios represent the characteristics of a healthy and stable financial situation. In contrast, the correct option highlights the core issue of financial distress: a company’s struggle to fulfill its financial commitments, which can lead to serious consequences for its operations and long-term viability.