What financial statement sign suggests a firm may be in distress?

A significant indicator of financial distress for a firm is the increase in accounts payable and accrued expenses. When a company experiences financial difficulties, it may struggle to meet its short-term obligations. As a result, it might resort to delaying payments to suppliers or extending payment terms, which increases its accounts payable. Accrued expenses, which represent expenses that have been incurred but not yet paid, can also accumulate when cash flow is tight.

In a healthy financial situation, a firm typically manages its liabilities effectively and pays its suppliers on time. However, an increase in accounts payable and accrued expenses signals that the company may be using these mechanisms to temporarily improve cash flow or to manage liquidity issues, which are often characteristics of financial distress.

In contrast, high capital expenditures may indicate investment and growth, stable cash flow operations suggest healthy performance, and growing revenue streams generally reflect a positive trajectory for the company's financial health. Thus, these options do not inherently signal distress as they are indicative of normal or positive business operations.