Distress can occur if a company has expensive business operations including financing, assets which are not liquid, a low revenue stream and unproductive employees. If a business is having difficulty meeting its short-term financial obligations the company is unable to get the financial backing and buy-in to fund long-term projects which can be profitable.
Stress and poor company performance can negatively affect the morale of the work-force who may anticipate loss of jobs or Bankruptcy. Loss of morale and job stress may manifest itself in an unproductive workforce. Companies who are distressed must solve their cash flow issues which can include trying to renegotiate the amount of debt owed to Creditors to increase liquidity. Unfortunately, distressed companies often face increased costs (legal costs, management costs and auditor's fees) as they attempt to solve their financial issues. If a company can not solve their cash flow problems they may eventually choose to restructure their debt by filing Chapter 11 Bankruptcy. The term distressed can also refer to securities which are non-profitable and selling at a discounted price.