Cost of financial distress - Revision history

imported>Doug Williamson: Add link.

2023-03-11T21:43:23Z

Add link.

← Older revision		Revision as of 21:43, 11 March 2023
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	== See also ==		== See also ==
	* [[Debt equity ratio]]		* [[Debt equity ratio]]
			* [[Financial ]]
	* [[Financial distress]]		* [[Financial distress]]
	* [[Insolvency]]		* [[Insolvency]]

imported>Doug Williamson: Expand definition.

2022-07-01T16:33:30Z

Expand definition.

← Older revision		Revision as of 16:33, 1 July 2022
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	Also known as Bankruptcy costs.		Also known as ''Bankruptcy costs'' or ''Insolvency costs.''

imported>Doug Williamson: Add link.

2022-03-26T18:32:53Z

Add link.

← Older revision		Revision as of 18:32, 26 March 2022
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	== See also ==		== See also ==
	* [[Debt equity ratio]]		* [[Debt equity ratio]]
			* [[Financial distress]]
	* [[Insolvency]]		* [[Insolvency]]
	* [[Interest cover]]		* [[Interest cover]]

imported>Doug Williamson: Add link.

2021-12-16T16:26:29Z

Add link.

← Older revision		Revision as of 16:26, 16 December 2021
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	* [[Interest cover]]		* [[Interest cover]]
	* [[Modigliani and Miller]]		* [[Modigliani and Miller]]
			* [[Norm]]
	* [[Shareholder value]]		* [[Shareholder value]]
	* [[Tax relief]]		* [[Tax relief]]

imported>Doug Williamson: Add link.

2021-07-01T10:40:16Z

Add link.

← Older revision		Revision as of 10:40, 1 July 2021
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	* [[Tax relief]]		* [[Tax relief]]
	* [[Tax shield]]		* [[Tax shield]]
			* [[Workout]]

	[[Category:Accounting,_tax_and_regulation]]		[[Category:Accounting,_tax_and_regulation]]

imported>Doug Williamson: Classify page.

2021-06-03T17:22:46Z

Classify page.

← Older revision		Revision as of 17:22, 3 June 2021
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	* [[Interest cover]]		* [[Interest cover]]
	* [[Modigliani and Miller]]		* [[Modigliani and Miller]]
			* [[Shareholder value]]
			* [[Tax relief]]
			* [[Tax shield]]

			[[Category:Accounting,_tax_and_regulation]]
			[[Category:Corporate_finance]]
			[[Category:Investment]]
			[[Category:Long_term_funding]]
			[[Category:Identify_and_assess_risks]]
			[[Category:Manage_risks]]
			[[Category:Risk_frameworks]]
			[[Category:Risk_reporting]]
			[[Category:Financial_products_and_markets]]

imported>Doug Williamson: Spacing.

2013-08-17T12:25:01Z

Spacing.

← Older revision		Revision as of 12:25, 17 August 2013
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	According to Modigliani and Miller's theory, as a company’s capital structure is composed of more and more debt a point is reached where equity cost and debt cost increase beyond that predicted by pure arbitrage of the appropriate cost of capital for the business.		According to Modigliani and Miller's theory, as a company’s capital structure is composed of more and more debt a point is reached where equity cost and debt cost increase beyond that predicted by pure arbitrage of the appropriate cost of capital for the business.

	This extra cost is described as the cost of financial distress; potentially the cost of dealing with a near-insolvency situation.		This extra cost is described as the cost of financial distress; potentially the cost of dealing with a near-insolvency situation.


	Financial distress costs can include:		Financial distress costs can include:
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	* Management time and loss of operational focus through the additional communications needed with lenders.		* Management time and loss of operational focus through the additional communications needed with lenders.
	* In the worst case, actual insolvency.		* In the worst case, actual insolvency.


	The point at which financial distress costs become significant can be difficult to predict with precision.		The point at which financial distress costs become significant can be difficult to predict with precision.

	However it can be estimated by reference to industry norms for key financial credit assessment ratios such as interest cover and debt equity ratios.		However it can be estimated by reference to industry norms for key financial credit assessment ratios such as interest cover and debt equity ratios.

	At the point at which the borrower breaches the industry norm for key ratios, it is likely that significant financial distress costs will be incurred.		At the point at which the borrower breaches the industry norm for key ratios, it is likely that significant financial distress costs will be incurred.


	Also known as Bankruptcy costs.		Also known as Bankruptcy costs.


	== See also ==		== See also ==

imported>Doug Williamson: Changed bullets

2013-08-05T11:53:21Z

Changed bullets

← Older revision		Revision as of 11:53, 5 August 2013
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	Financial distress costs can include:		Financial distress costs can include:
	o Higher rates of interest payable on borrowings.		* Higher rates of interest payable on borrowings.
	o Additional fees payable on new borrowings.		* Additional fees payable on new borrowings.
	o Additional restrictive covenants for new borrowings.		* Additional restrictive covenants for new borrowings.
	o Reduced availability of borrowings.		* Reduced availability of borrowings.
	o Reduced availability of trade credit.		* Reduced availability of trade credit.
	o Management time and loss of operational focus through the additional communications needed with lenders.		* Management time and loss of operational focus through the additional communications needed with lenders.
	o In the worst case, actual insolvency.		* In the worst case, actual insolvency.

	The point at which financial distress costs become significant can be difficult to predict with precision.		The point at which financial distress costs become significant can be difficult to predict with precision.

imported>Doug Williamson: Spacing

2013-08-05T11:11:31Z

Spacing

← Older revision		Revision as of 11:11, 5 August 2013
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	''Corporate finance''.		''Corporate finance''.

	According to Modigliani and Miller's theory, as a company’s capital structure is composed of more and more debt a point is reached where equity cost and debt cost increase beyond that predicted by pure arbitrage of the appropriate cost of capital for the business.		According to Modigliani and Miller's theory, as a company’s capital structure is composed of more and more debt a point is reached where equity cost and debt cost increase beyond that predicted by pure arbitrage of the appropriate cost of capital for the business.
	This extra cost is described as the cost of financial distress; potentially the cost of dealing with a near-insolvency situation.		This extra cost is described as the cost of financial distress; potentially the cost of dealing with a near-insolvency situation.
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	* [[Interest cover]]		* [[Interest cover]]
	* [[Modigliani and Miller]]		* [[Modigliani and Miller]]

imported>Administrator: CSV import

2012-10-23T14:19:09Z

CSV import

New page

''Corporate finance''.
According to Modigliani and Miller's theory, as a company’s capital structure is composed of more and more debt a point is reached where equity cost and debt cost increase beyond that predicted by pure arbitrage of the appropriate cost of capital for the business.
This extra cost is described as the cost of financial distress; potentially the cost of dealing with a near-insolvency situation.

Financial distress costs can include:
o Higher rates of interest payable on borrowings.
o Additional fees payable on new borrowings.
o Additional restrictive covenants for new borrowings.
o Reduced availability of borrowings.
o Reduced availability of trade credit.
o Management time and loss of operational focus through the additional communications needed with lenders.
o In the worst case, actual insolvency.

The point at which financial distress costs become significant can be difficult to predict with precision.
However it can be estimated by reference to industry norms for key financial credit assessment ratios such as interest cover and debt equity ratios.

At the point at which the borrower breaches the industry norm for key ratios, it is likely that significant financial distress costs will be incurred.

Also known as Bankruptcy costs.

== See also ==
* [[Debt equity ratio]]
* [[Insolvency]]
* [[Interest cover]]
* [[Modigliani and Miller]]