Finally, we look at worsening credit metrics as a financial sign of distress. Key indicators include significant levels of leverage. Leverage is typically tracked using their net debt to EBITDA ratio. If this is way above competitors' levels or the historical average for the company, then this suggests worsening credit quality. Comfortable leverage levels depend on the industry and the specific company, but broadly speaking, leverage ratios above eight times net debt to EBITDA would indicate a very risky and unsustainable capital structure.

Another metric to watch for is limited and declining interest coverage ratio. This is most often tracked using the EBITDA to interest expense ratio. A declining interest coverage ratio indicates that the company is less and less able to afford its interest expense. The usual threshold for concern is when this ratio drops below two times EBITDA to interest expense. However, care must be taken when analyzing these credit metrics as they fluctuate together with EBITDA. If a company's EBITDA is affected by one-off events such as restructuring costs or impairments, these metrics might look excessively bad. However, if EBITDA is normalized, which involves excluding the impact of these one-offs, the situation might not be as concerning as such. Using a normalized EBITDA for these ratios is very important.