Which factor indicates a company's inability to meet its debt obligations?

Frequent delays in vendor payments are a strong indicator of a company’s inability to meet its debt obligations. When a company consistently struggles to pay its vendors on time, it suggests that it may be facing cash flow issues or is unable to generate sufficient revenue to cover its operational expenses. Such delays can signal financial distress, affecting a company’s reputation and possibly leading to stricter credit terms or loss of vendor relationships, which can further exacerbate its financial challenges.

In contrast, high liquidity ratios generally reflect a company’s ability to meet short-term obligations, while increased inventory levels could indicate a buildup of stock but not necessarily imply immediate financial distress. Consistent quarterly profits suggest financial health and profitability, which contradicts the notion of an inability to meet debt obligations. Therefore, the presence of frequent payment delays serves as a clear warning sign of underlying financial struggles and potential difficulties in servicing debt.