assessing financial health
Step 1,2: Analyze Fundamentals
Step 3: Analyze Investments to Support the Business unit(s) Strategy(ies)
Step 4: Assess Future Profitability and Competitive Performance
• What has been the average level, trend, and volatility of profitability?
• Is the level of profitability sustainable, given the outlook for the market and for competitive and regulatory pressures?
• Is the current level of profitability at the expense of future growth and/or profitability?
• Has management initiated major profit improvement programs? o Are they unique to the firm or are they industry wide and may be reflected in lower prices rather than higher profitability? o Are there any “hidden” problems, such as suspiciously high levels or buildups of accounts receivable or inventory relative to sales, or a series of unusual transactions and /or accounting changes?
Step 5: Assess Future External Financing Needs
Step 6: Ensure Access to Target Sources of External Finance
• How sound is the firm’s financial structure, given its level of profitability and cash flow, level of business risk, and its future need for finance?
• How will the firm service its debt? To what extent is it counting on refinancing with a debt equity issue?
• Does the firm have assured access on acceptable terms to the equity markets? How many shares could be sold and at what price in “good times”? In a period of adversity?
• What criteria are used by each of the firm’s target sources of finance to determine whether finance will be provided and, if so, on what terms?
Step 7: Assess Viability of the 3-to 5- year plan
• Is the operating plan on which the financial forecasts are based achievable?
• Will the company achieve its strategic, competitive, and financial goals?
• Will the resources required by the plan be available?
• How will the firm’s competitive, organizational, and financial health at the end of the 3 to 5 years compare with its condition at the outset?
Step 8: Perform Stress Test under
Step 3: Analyze Investments to Support the Business unit(s) Strategy(ies)
Step 4: Assess Future Profitability and Competitive Performance
• What has been the average level, trend, and volatility of profitability?
• Is the level of profitability sustainable, given the outlook for the market and for competitive and regulatory pressures?
• Is the current level of profitability at the expense of future growth and/or profitability?
• Has management initiated major profit improvement programs? o Are they unique to the firm or are they industry wide and may be reflected in lower prices rather than higher profitability? o Are there any “hidden” problems, such as suspiciously high levels or buildups of accounts receivable or inventory relative to sales, or a series of unusual transactions and /or accounting changes?
Step 5: Assess Future External Financing Needs
Step 6: Ensure Access to Target Sources of External Finance
• How sound is the firm’s financial structure, given its level of profitability and cash flow, level of business risk, and its future need for finance?
• How will the firm service its debt? To what extent is it counting on refinancing with a debt equity issue?
• Does the firm have assured access on acceptable terms to the equity markets? How many shares could be sold and at what price in “good times”? In a period of adversity?
• What criteria are used by each of the firm’s target sources of finance to determine whether finance will be provided and, if so, on what terms?
Step 7: Assess Viability of the 3-to 5- year plan
• Is the operating plan on which the financial forecasts are based achievable?
• Will the company achieve its strategic, competitive, and financial goals?
• Will the resources required by the plan be available?
• How will the firm’s competitive, organizational, and financial health at the end of the 3 to 5 years compare with its condition at the outset?
Step 8: Perform Stress Test under