Which of the Following Are Potential Indicators of Financial Distress

question 10

Multiple Choice

Which of the following are potential indicators of financial distress?
(i) A sudden drop in share price
(ii) Increased turnover
(iii) Increased gearing ratio
(iv) Fall in profits

• A) All of them could indicate financial problems
• B) None of these factors would cause much concern, especially in isolation
• C) (i), (iii) and (iv) are bad news, but increased turnover would be good news
• D) (i) and (iv) are indicators, but (ii) and (iii) are improvements to the financial position

---

Definitions:

Security Interest

A legal claim or lien on collateral, which gives the holder the right to seize property if the debtor fails to meet the obligations of a loan or agreement.

Line of Credit

An arrangement between a financial institution and a client that establishes a maximum loan balance that the borrower can access.

Inventory

The total amount of goods and materials held by a business for the purpose of sale or production.

Debtor's Rights

Legal rights and protections afforded to individuals or entities that owe money, guarding against unfair treatment and abuses by creditors.