Financial Distress Models

Financial distress models are tools used to assess the likelihood that a company might face monetary difficulties, potentially leading to bankruptcy. These models analyze various financial indicators, such as debt levels, cash flow, and profitability, to predict financial health. By examining historical data and patterns, they help investors, creditors, and managers make informed decisions about risks and necessary actions to improve stability. In essence, these models serve as early warning systems, allowing stakeholders to identify and address potential problems before they escalate.