Below are various states of financial distres s:
1)defaulting on a principal payment on debt
2)restructuring debt
3)liquidating a firm
4)filing for bankruptcy
5)failing to make a required interest payment on time
What is the order of increasing gravity that analysts typically consider when assessing credit risk and bankruptcy risk according to a continuum of financial distress?
A) 5, 1, 2, 3, 4
B) 5, 2, 1, 4, 3
C) 1, 5, 2, 4, 3
D) 1, 5, 2, 3, 4

Question

Quizplus · Accepted Answer

Failing to make an interest payment is often the first sign of distress, followed by restructuring debt. Defaulting on principal is more severe, filing for bankruptcy is a legal step indicating severe distress, and liquidating a firm is the most severe as it involves selling off assets to pay creditors.

Below Are Various States of Financial Distres S