A sample of 101 companies is selected randomly from Bursa Malaysia during the period 2005-2009 where two models are used to analyze the relationships between financial distress and firms’ characteristics and risk. The dependent variables are long-term debt to total equity ratio and short-term debt to total equity ratio. The independent variables are profitability, liquidity, firm size, solvency, growth and risk. Size is found to be significant and has a positive relationship with financial distress. Interest coverage ratio has a positive relationship with financial distress, while growth of operating profits has a negative relationship with financial distress. Corporate managers should use these indicators to detect early signs of financial distress and take innovative actions to prevent such occurrences.