...9 -9 1 1 -4 1 2 REV: MAY 28, 2012 Assessing a Company’s Future Financial Health Assessing the long-term financial health of a company is an important task for management as it formulates goals and strategies and for outsiders as they consider the extension of credit, long-term supplier agreements, or an investment in a company’s equity. History abounds with examples of companies that embarked on overly ambitious programs and subsequently discovered that their portfolios of programs could not be financed on acceptable terms. The outcome was frequently the abandonment of programs mid-stream at considerable financial, organizational, and human cost. It is the responsibility of management to anticipate a future imbalance in the corporate financial system before its severity is reflected in the financials, and to consider corrective action before both time and money are exhausted. The avoidance of bankruptcy is an insufficient standard. Management must ensure the continuity of the flow of funds to all of its strategically important programs, even in periods of adversity. Figure A provides a conceptualization of the corporate financial system, with a suggested step-bystep process to assess whether it will remain in balance over the ensuing 3 to 5 years. The remainder of this note discusses each of the steps in the process and then provides an exercise on the various financial measures that are useful as part of the analysis. The final section of the note demonstrates ...
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...Professor Thomas Piper prepared the original version of this note, “Assessing a Firm’s Future Financial Health,” HBS No. 201-077, which is being replaced by this version prepared by the same author. This note was prepared as the basis for class discussion. Copyright © 2010, 2011, 2012 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1- 800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu/educators. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School. Assessing a Company’s Future Financial Health Assessing the long-term financial health of a company is an important task for management as it formulates goals and strategies and for outsiders as they consider the extension of credit, long-term supplier agreements, or an investment in a company’s equity. History abounds with examples of companies that embarked on overly ambitious programs and subsequently discovered that their portfolios of programs could not be financed on acceptable terms. The outcome was frequently the abandonment of programs mid-stream at considerable financial, organizational, and human cost. It is the responsibility of management to anticipate a future imbalance in the corporate financial system before its severity is reflected in the financials, and to consider corrective action before both time and money...
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...INTERNATIONAL JOURNAL OF MANAGEMENT, BUSINESS, AND ADMINISTRATION VOLUME 8, NUMBER 1, 2005 Assessing A Firm’s Future Financial Health Alicia Kritsonis MBA Graduate Student California State University, Dominquez Hills ABSTRACT The purpose of this article is to explain a step-by-step process that can assess whether a firm will remain in balance over the next two to three years. Various financial ratios will be discussed as a critical aspect of this process analysis. A case study of assessing the future health of the Harley Davidson, Inc. using a ratio analysis is included in the article to explain the step-by-step process used by managers to ensure a firm’s success. A great analogy comes to mind when considering the effects of assessing your firm’s future health. It is helpful to think of your firm as a three-legged stool. The legs are operations, marketing, and finance/accounting. As you, the leader, try to sit atop the stool, it must be balanced so that you can shift your position and sit comfortably. However, if one of the legs of the stool is too short or too long, then the stool is difficult to manage and unstable (http://www.thefullermangroup.com). Here is an example of an unbalanced firm. A firm borrows cash in order to expand its facility and operating capacity. However, sales remain constant resulting in a cash shortage. Consequently, the increased overhead costs diminish the working capital. Purchase discounts are missed resulting in decreased margins. The...
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...INTERNATIONAL JOURNAL OF SCHOLARLY ACADEMIC INTELLECTUAL DIVERSITY VOLUME 8, NUMBER 1 2004-2005 Assessing A Firm’s Future Financial Health Alicia Kritsonis MBA Graduate Student California State University, Dominquez Hills ABSTRACT The purpose of this article is to explain a step-by-step process that can assess whether a firm will remain in balance over the next two to three years. Various financial ratios will be discussed as a critical aspect of this process analysis. A case study of assessing the future health of the Harley Davidson, Inc. using a ratio analysis is included in the article to explain the step-by-step process used by managers to ensure a firm’s success. A great analogy comes to mind when considering the effects of assessing your firm’s future health. It is helpful to think of your firm as a three-legged stool. The legs are operations, marketing, and finance/accounting. As you, the leader, try to sit atop the stool, it must be balanced so that you can shift your position and sit comfortably. However, if one of the legs of the stool is too short or too long, then the stool is difficult to manage and unstable (http://www.thefullermangroup.com). Here is an example of an unbalanced firm. A firm borrows cash in order to expand its facility and operating capacity. However, sales remain constant resulting in a cash shortage. Consequently, the increased overhead costs diminish the working capital. Purchase discounts are missed resulting in decreased margins...
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...Users of Financial Information Managers Managers require Financial Statements to manage the affairs of the company by assessing its financial performance and position and taking important business decisions. Shareholders Shareholders use Financial Statements to assess the risk and return of their investment in the company and take investment decisions based on their analysis. Investors Prospective Investors need Financial Statements to assess the viability of investing in a company. Investors may predict future dividends based on the profits disclosed in the Financial Statements. Furthermore, risks associated with the investment may be gauged from the Financial Statements. For instance, fluctuating profits indicate higher risk. Therefore, Financial Statements provide a basis for the investment decisions of potential investors. Financial Institutions Financial Institutions (e.g. banks) use Financial Statements to decide whether to grant a loan or credit to a business. Financial institutions assess the financial health of a business to determine the probability of a bad loan. Any decision to lend must be supported by a sufficient asset base and liquidity. Suppliers need Financial Statements to assess the credit worthiness of a business and ascertain whether to supply goods on credit. Suppliers Suppliers need to know if they will be repaid. Terms of credit are set according to the assessment of their customers' financial health. Customers use Financial Statements...
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...Week 3 exam? | May 12 – 16 | * Read: Strategy and Your Stronger Hand,” Geoffrey A. Moore, Harvard Business Review, December 2005. Available for free through UW library’s Business Source Complete electronic database. See LEARN for instructions. * Read: “Assessing a Company’s Future Financial Health,” Thomas Piper, Harvard Business School, May 2012. Available in AFM 211 Courseware Package; AND, * Complete ratio analysis for SciTronics in “Assessing a Company’s Future Financial Health” on pages 6-10 and use that analysis to answer questions 1 and 3 framed as “broad questions” at the top of page 6. * Try the “Case of the Unidentified Industries” in “Assessing a Company’s Future Financial Health” on page 11 and Exhibit 3. | Operating and Investing Decisions: Value Chain, Profit Model, and Profit Driver Analysis | May 15th Lecture AL 116 [6:00 – 6:50PM]Topic: Relevant – It Depends. On what? | May 19 – 23 | * Complete Online Module # 1 – Learning with Cases | No face-to-face class [Note: allocate your class and prep time to complete Online Module # 1] | May 22nd AFM 211 Exam # 1 [7:00 – 9:00PM]Location TBAExam # 1: Exercises. Document Business Model Canvas; Ratio Analysis; Identifying Unidentified Companies [see Piper article, pages 11-13]. | May 26 – 30 | * Read: “Financing...
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...The Community and Financial Role of the Healthcare Manager What is a Community Health Centers? Community health centers are public or non-profit clinic sites located in medically underserved, rural, and urban areas throughout the nation. They receive grants under the Community and Migrant Health Centers Program of the US Department of Health and Human Services to provide primary and preventive care to community residents. Community health centers remove common barriers to care by serving communities that otherwise confront financial, geographic, language/cultural and other barriers, making them different from most private, office-based practices. CHCs are: • Located in high-need areas identified by the federal and state government as having elevated poverty, higher than average infant mortality, and where fewer providers agree to practice; • Open to all residents, regardless of insurance status, and provide reduced cost care based on ability to pay; • Tailor services to fit the special needs and priorities of local communities, and provide services based on the advice of local residents, businesses, churches, and other organizations; and • Offer services that help patients access health care, such as transportation, translation, case management, health education, and chronic disease management. Health centers are required by law to provide: • Basic health services related to family medicine, internal medicine, pediatrics, obstetrics, or gynecology; ...
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...ASSESSING AND MANAGING YOUR FINANCIAL SITUATION Cancer and its treatment can leave a survivor with a need to review current and future financial goals. Events such as illness, disability, employment changes and investment disappointments can affect your personal and financial well-being. An assessment of your situation can help define your present financial status as well as prepare for future planning, saving, spending and dealing with financial emergencies. Preparation for changes and challenges to finances can contribute to increased financial security. ------------------------------------------------- Assessing and Managing Your Financial Situation: Detailed Information This information is meant to be a general introduction to this topic. The purpose is to provide a starting point for you to become more informed about important matters that may be affecting your life as a survivor and to provide ideas about steps you can take to learn more. This information is not intended nor should it be interpreted as providing professional medical, legal and financial advice. You should consult a trained professional for more information. Please read the Suggestions and Additional Resources documents for questions to ask and for more resources. Cancer and its treatment can leave a survivor with need to review current and future financial goals. Dealing with financial matters might seem overwhelming. However, an assessment of your current situation can help define your present financial...
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...Determining Financial Viability Accounting and finance are closely related to a certain extent in which both deal with the financial aspects of a company. Accounting and finance work together in creating “a company’s budget or working capital analysis” (Wise-Geek, 2012, p. 1). Accounting involves recording of an organizations operations of a business as well as showing the information in the outline profit and loss accounts, which demonstrates the gain or loss of the organizations throughout the year. In addition, accounting includes provisions of a balance sheet replicating the monetary positions of a business at a specific time period. It should provide clear and precise figures about the proprietary and financial condition in a specific entity. Finance is a wider view and uses information, which is obtainable in the accounting area such as “profit and loss, balance sheet, and cash flow statement” (Parikh, 2011, p. 1) to decide upon financially linked judgments, for instance how to increase funds for upcoming plans of a business. These statements provide a valuable amount of information for a company. The statistics retained in these statements assists financial directors with analyzing past performance as well as future inclinations of a business. Both accounting and finance must be used together to make effective decisions for a company therefore, finance uses past statistics from the accounting aspect to formulate future decisions. In order to determine financial viability...
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...Assessing a Company’s Future Financial Health SciTronics Inc. Case #1 Prepared by James Elias Prepared For Babak Lotfaliei Fin 423 MW: 10:00 AM- 11:50 AM 02/11/2015 Table of Contents Company Overview and Analysis Objective 1 Assessing the Company’s Profits and Sales Growth 1-2 Assessing the Company’s Use of Assets 2-3 Determining Solvency and Liquidity 3-4 Matching Companies Exercise 5 Appendix 6-14 Company Overview and Analysis Objective SciTronics is a company that operates in the medical device industry; they sell to hospitals and other medical centers with the goal of manufacturing and supplying quality goods. Being in the medical market from 2005-2008, SciTronics has been forced to keep up with an ever-changing and highly competitive industry. For this reason I found it necessary to conduct an assessment of the company’s past and present performance. Our group’s objective was to assess the overall health and financial stability of SciTronics incorporated, to achieve this I implemented the Corporate Financial System Framework (See Appendix I) and calculated four groups of ratios: Profitability, Asset Management, Leverage and Liquidity. Assessing the Company’s Profits and Sales Growth First and foremost I looked at the company’s profitability ratios starting with sales growth from 2005-2008 (See Appendix D). Knowing how well the medical industry did during this period of time, it wasn’t a surprise...
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...Assessing a Company’s Future Financial Health 911 - 412 3 Steps 1, 2 : Analyze Fundamentals The corporate financial system is driven by a firm’s goals, business unit choices and strategies, market conditions , a n d operating characteristics. The firm’s strategy and sales growth in each of its business units will determine the investment in assets needed to support these strategies; and the effectiveness of the strategies, combined with the response of competitors and regulators, will strongly influence the firm’s competitive and profit performance, its need for external finance, and access to debt and equity markets. Clearly, many of these questions require information beyond that contained in a compan y’s published financial reports. Step 3: Analyze Investments to Support the Business Unit(s) Strategy(ies) The business unit strategies inevitably require investments in accounts receivable, inventories, plant & equipment, and possibly, acquisitions. Step 3 of the proces s is an attempt to estimate the amount that will be tied up in each of the asset types by virtue of sales growth and the improvement/de terioration in asset management. An analyst can make a rough estimate by studying the past pattern of the collection period, the days of inventory, and plant & equipment as a percent age of cost of goods sold; and then applying a “reasonable value” for each category to the sales forecast or the forecast of cost of goods sold. E ...
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...Industry Environment: The computer industry includes all of the world's businesses that are involved in manufacturing, developing, selling, and maintaining computer hardware and software, computer accessories, and network infrastructures. Many economic and financial experts believe this to be one of the most quickly growing and profitable industries in existence. Computer industry analysis is the practice of monitoring the industry for trends, technological developments, and potential risk. The monitoring of trends is an important part of computer industry analysis. Trends can refer to a number of different factors that impact pricing, manufacturing, and investments related to the industry. The world PC industry expanded 6% in 2010 to exceed $175 billion, according to MarketLine. The market is expected to fall to just over $174 billion in 2015, marking more than a 0.5% decline. The industry is expected to exceed 446 million units in terms of volume in 2015, representing a near 52% increase compared with 2010. The Americas represent almost 40% of the overall market, which is highly competitive due to large scale outfits and a diverse market environment. The computer industry market also has trends that can be monitored and recorded in computer industry analysis. Factors such as stocks, investments, and pricing may be taken into account. This information can serve relevant businesses in forming business plans and strategies concerning when to introduce products, how to price...
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...measures to improve the company results. Employees Accounting information is need for assessing organisation's profitability and whether it will have any effect on their future remuneration and job security. Owner Lastly accounting information is needed for the owner for analysing the feasibility and profitability of their investment and determining any future course of action. Accounting information is presented to internal users usually in the form of management accounts, budgets, forecasts and financial statements. External users External users include creditor, tax authorities, investors, etc. Creditor It is used for determining the credit worthiness of the organization. Terms of credit are set according to the assessment of their clients' financial health. Creditors include suppliers as well as lenders of finance such as banks. Tax Authorities Accounting information is for determining the credibility of the tax returns filed on behalf of the company. Investors Accounting information is used by analysing the probability of investing in the company. Investors want to make sure they can earn a reasonable profit on their investment before they commit any financial resources to the company. External users are communicated accounting information usually in the form of financial statements. The purpose of financial statements is to cater for the needs of such various users of accounting information in order to help them in making sound financial decisions. ...
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...DETERMINING CREDIT WORTHINESS OF A COMPANY; A CASE OF NATIONAL FABRICATORS I. Introduction/background a. What is the case about? b. What are the issues to be analysed? - What are the options? - What are the decisions to be made? II. Analysis of the issues III. Recommendations with reasons IV. Executive Summary INTRODUCTION/ BACKGROUND What is the case about? In July 1994, the president of National Fabricators Inc Mr. Tom Kruger called his bank manager of the confederation Bank of Canada, Mr.Jim Kashmar to ask that the bank continue to extend a temporary line of credit of $ 1,000,000 for a period of sixty days. They needed this extension because there had been some delays in the collection of the company’s holdbacks for that period. After the sixty days they hoped to have collected their holdbacks and other receivables so they would return to their normal line of credit which was $800,00. In the month before however, national fabricators had asked for the same extension in credit as a result of delays in the collection of some payments for locker room installations done. The bank had reluctantly extended the credit on the basis of the confidence in the new president of the company, relations with client and the company’s impact on community. They however stated that, nothing in the application warranted the extension of further credit. As such this new appeal for an extension had to be...
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...SZT1 Community Health Practice Task 4 Disaster in Franklin County Tracie Willis Western Governors University Franklin County was recently victim to a massive summer storm. The storm resulted in tornado, thunder storms, flash flooding, power outages, roads and bridges closed, and even a hazardous materials spill. To assess the damages that the towns and the residents suffered, and how to best deal with the aftermath, a task force was created. The Emergency Operations Center (EOC) was set up and an Incident command briefing was called. The chain of command was established at this time. All members of the task force reported to the EOC commander. The community health nurse was called to join the task force as a member of the Public Health Group; this group was under the supervision of the Medical/Health Branch Director. The Director of the Medical/Health branch reported to the Operations Chief and she reported directly to the EOC Commander. One of the branches of the task force, the Public Health Group, was tasked with evaluating the health risks and needs of the community. This group was led by the Operations Chief; her responsibilities included developing and implementing strategy and tactics to carry out the objectives identified by the taskforce at the EOC briefing, as well as organize, assign, and supervise the tactical field operations. The Logistics chief supports the operation by acquiring things that are need to get the...
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