Firms in industries such as real estate tend to maintain Low distress costs because of a large portion of tangible assets.
<h3>What is Distress costs?</h3>
Crisis cost is the additional cost that a company in financial distress faces over and beyond normal operating expenses. Distress expenses may be observable, such as paying higher borrowing rates or more money up front to suppliers. Financial distress entails a number of expenses, such as bankruptcy fees, losses from distressed asset sales, a higher cost of capital, supplemental expenses, and conflicts of interest.
When a business or individual is in financial hardship, it means that they are unable to satisfy their financial responsibilities because they are not able to create enough revenue or money. This is typically caused by high fixed expenditures, a high percentage of illiquid assets, or revenue sources that are susceptible to economic downturns.
The physical form of tangible assets can be handled, changed, or viewed. A company's tangible assets are employed to generate future economic advantage. As their physical state deteriorates over time, tangible assets may lose value. Tangible assets are frequently used as collateral to secure debt and loans.
Hence, Firms in industries such as real estate tend to maintain Low distress costs because of a large portion of tangible assets.
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