Distressed Securities are financial instruments issued by a company that is near to—or currently going through—bankruptcy. These securities are often purchased at a discount because of the increased risk associated with them, and investors hope to make a profit if the company manages to turn around its finances. However, there is also a significant risk of loss if the company declares bankruptcy.One key factor in determining whether or not distressed securities will be profitable is how much debt the company has relative to its assets. If it has more liabilities than assets, it's likely that the company will go bankrupt and holders of its distressed securities will lose money. In contrast, companies with manageable levels of debt may be able to restructure their finances and emerge from bankruptcy as viable businesses again.It's important for investors to do their due diligence before buying any distressed security, as these investments can be quite risky. They should research the underlying company closely and assess how likely it is that it will declare bankruptcy in order to determine whether or not they stand a chance of making a profit on their investment.
