Which strategic option is commonly pursued by distressed companies?

Raising capital through asset sales is a strategic option frequently pursued by distressed companies for several reasons. When a company is facing financial challenges, it often needs to improve its liquidity and strengthen its balance sheet. Selling non-core or underperforming assets can provide immediate cash flow, which can be used to pay down debt, fund essential operations, or reinvest in more viable areas of the business.

This approach not only helps in alleviating financial pressures but also allows the company to focus on its core competencies, potentially leading to a more sustainable business model moving forward. Distressed companies generally look for ways to stabilize their operations, and asset sales can be a practical means to achieve that stability while avoiding more drastic measures that might hamper long-term recovery.

In contrast, strategies like expanding operations into new markets or increasing debt without restrictions can be risky for a distressed company, as they may overextend resources or worsen financial situations. Additionally, completely eliminating all operational costs is often unsustainable and could negatively impact the remaining business operations and employee morale. Therefore, asset sales emerge as a more balanced and practical approach for distressed firms.