Goodday everybody

Financial
Management
Agenda

• Introduction
• Warning Sign of Financial Distress

• Causes of Financial Distress

• Tools for Analyzing of Financial Distress
• Conclusion and Q&A
 Causes of
Financial Distress

Introduction:
Financial distress refers to a situation in
which an individual, business, or entity
experiences significant difficulties in meeting
its financial obligations and fulfilling debt
repayment requirements. This state of
financial instability can arise from various
factors, including economic downturns, poor
management decisions, excessive debt, or
unexpected financial setbacks.
Causes of Financial Distress?

• Financial distress can be caused by a

variety of factors, and these factors
can vary depending on whether it's
an individual, a business, or another
entity. Here are some common
causes of financial distress
 1. Economic
Downturn:
A recession or economic downturn can lead to
reduced consumer spending, lower demand for
goods and services, and a decline in business
revenue.
2.Poor Financial Management
3.Excessive Debt

2.Poor Financial Management: 3.Excessive Debt:

Inadequate budgeting, overspending, or Accumulating too much debt through
mismanagement of funds can strain loans or credit cards without a sustainable
financial resources and lead to difficulties plan for repayment can result in financial
in meeting financial obligations. strain.
4.Unexpected Expenses:
5.Job Loss or Income Reduction:

Unexpected Expenses: Job Loss or Income Reduction:

Major medical expenses, natural disasters, Losing a job, experiencing a pay cut, or
or unforeseen events that require significant facing long-term unemployment can reduce
financial resources can lead to financial income and create financial challenges.
distress.
6.Business Mismanagement:
7.Market Changes:
Business Mismanagement:
Poor strategic decisions, inefficient
operations, or a lack of effective leadership
in a business can lead to financial
difficulties.
Market Changes:
Businesses may face financial distress due
to changes in market conditions, evolving
consumer preferences, or technological
advancements that render their products or
services obsolete.
8. Legal Issues:
9. Interest Rate Fluctuations:

Legal Issues: Interest Rate Fluctuations:

Legal battles, lawsuits, or regulatory fines Rising interest rates can increase the cost
can impose financial burdens on of borrowing, impacting businesses with
individuals or businesses, leading to high levels of debt and individuals with
distress. variable-rate loans.
10.Decline in Asset Values:
11. Global Events:
Decline in Asset Values:
A significant drop in real estate values,
stock prices, or other asset values can erode
an individual's or business's net worth.
Global Events:
Events like pandemics, geopolitical
tensions, or natural disasters can have
widespread economic implications,
affecting individuals and businesses
globally.
12. Supply Chain Disruptions:
Supply Chain Disruptions:
Businesses may face financial distress if
they heavily rely on suppliers, and
disruptions in the supply chain impact their
ability to produce or deliver goods.
So,
Understanding the root causes of financial
distress is crucial for implementing
effective strategies to address and mitigate
these challenges. In many cases, seeking
professional financial advice and proactive
financial management can help individuals
and businesses navigate through difficult
times.
1. Here are some questions related to the causes
of financial distress along with brief answers:

Maintaining composure during the Q&A session is

essential for projecting confidence and authority.
Consider the following tips for staying composed:
• Stay calm
• Actively listen
• Pause and reflect
• Maintain eye contact
Navigating Q&A
sessions
Open the Floor for
any questions.

1.Question: What role does economic

downturn play in causing financial distress?
Answer: Economic downturns can lead to
reduced consumer spending, lower demand for
goods and services, and a decline in business
revenue, contributing to financial distress.
Open the Floor for
any questions.

Question: How can poor financial

management contribute to financial distress?
Answer: Inadequate budgeting, overspending, or
mismanagement of funds can strain financial
resources, making it challenging to meet
financial obligations and leading to financial
distress.
Open the Floor for
any questions.

Question: Give an example of how excessive debt can lead

to financial distress.
Answer: Accumulating too much debt without a
sustainable plan for repayment can result in high
interest payments, financial strain, and difficulties
meeting other financial commitments.
Question: What impact can unexpected expenses have on
an individual's financial situation?
Answer: Major unexpected expenses, such as medical
bills or home repairs, can deplete savings, disrupt
financial plans, and lead to financial distress.
Open the Floor for
any questions.

Question: How does job loss or income reduction contribute to

financial distress?

Answer: Losing a job or experiencing a reduction in income can

significantly impact an individual's ability to cover living expenses and
may lead to financial distress.

Question: Explain how business mismanagement

can result in financial distress.
Answer: Poor strategic decisions, inefficient
operations, or ineffective leadership can lead to
decreased revenue, increased costs, and overall
financial instability for a business.
Open the Floor for
any questions.

Question: In what ways can legal issues contribute to

financial distress for individuals or businesses?
• Answer: Legal battles, lawsuits, or regulatory fines can
result in significant financial burdens, impacting the
financial health of individuals or businesses.
Question: How do interest rate fluctuations affect financial
distress for borrowers?
• Answer: Rising interest rates can increase the cost of
borrowing, affecting individuals and businesses with
variable-rate loans and contributing to financial
distress.
Open the Floor for
any questions.

Question: Give an example of how a decline in asset values

can lead to financial distress.
• Answer: A significant drop in real estate values or stock
prices can erode an individual's or business's net worth,
potentially causing financial distress.
Question: How can global events impact financial distress on
a broader scale?
• Answer: Events like pandemics, geopolitical tensions,
or natural disasters can have widespread economic
implications, affecting individuals and businesses
globally and contributing to financial distress.
Final tips & takeaways
• Early Identification is Key:
• Diversify Income Sources:
• Prudent Financial Management:
• Emergency Fund:
• Regular Financial Health Checkups:
• Professional Financial Advice:
• Risk Mitigation Strategies:
• Adaptability and Innovation:
• Legal Compliance:
• Continuous Learning:
• Communication with Creditors:
• Balance Risk and Return:
• Remember that financial distress
is a complex issue with various
contributing factors. Taking a
proactive and strategic approach
to financial management, coupled
with a willingness to adapt to
changing circumstances, can
significantly reduce the likelihood
of falling into financial distress
and promote long-term financial
well-being.
Thank you
Md. Ahsan Habib
MBA-(1Year) of Pundra University of science and
Technology
Bath: 17th
ID: 0322410204083101
01612-723850