Below are various states of financial distress:
Defaulting on a principal payment on debt
Restructuring debt
Liquidating a firm
Filing for bankruptcy
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 less severe than defaulting on principal. Restructuring is more severe than defaulting but less than bankruptcy. Filing for bankruptcy is severe, but liquidation is the most severe.

Below Are Various States of Financial Distress