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Definition

Financial distress

Financial distress is that financial situation when a firm cann't meet or has difficulty paying off its financial obligations to its creditors, or a firm's operating cash flows are not sufficient to satisfy current liabilities.

Brealeys Myers, Allen and Mohanty said,” Financial distress occurs when promises to creditors are broken or honored with difficulty.”

Ross, Westen Field and Jaffe said,” Financial distress is a situation where a firm’s operating cash flows are not sufficient to satisfy current obligations and the firm is forced to take corrective action.”

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