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R E V: MAY 2 8 , 2 0 1 2
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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.
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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 the relationship between a firm’s strategy and operating characteristics; and its financial characteristics.
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911-412 Assessing a Company’s Future Financial Health
2
Figure AThe Corporate Financial System
Analyze Goals
Step 1
Strategy
Market, Competitive Technology
Regulatory and Operating Characteristics
Step 2
Analyze Revenue Outlook
growth rate
volatility, predictability
Step 3
Step 4
Analyze Investment in Assets
Assess Economic Performance
to support growth
profitability
improvement/deterioration in asset management
cash flow
volatility, predictability
Step 5
Step 6
Assess External Financing Need
Ensure Access to Target Sources of Finance
$ amount
lending/investing criteria
timing, duration
deferability
attractiveness of firm to each target source
Step 7
Assess Viability of 3 to 5-year Plan
consistency with goals
achievable operating plan
achievable financing plan
Step 8
Perform Stress Test for Viability
Under
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Using financial statements, given within an annual report, it is possible to assess and monitor the health of a company. Within this report, research has been carried out on the BG Group making comparison between the group’s financial years.
This study confined to 5 years data from annual reports of the organization. It reveals the profitability of the firm which receives as basis for further business planning like whether to continue in the business or expand the business. The study reveals the liquidity position of the unit. It shows firms ability to meet its immediate maturity obligation. The study reveals the solvency position of the unit. It shows the capacity or ability of the business to meet its short and long term obligation. The study reveals the information of finance required in the subsequent years and help for finance
Piper, Thomas. Assessing a Company 's Future Financial Health. 911th ed. Vol. 9. Boston, MA.: Harvard Business Review, 2012. Print. Ser. 412.
Serguei Netessine 1 The Wharton School University of Pennsylvania Robert Shumsky2 W. E. Simon Graduate School of Business Administration University of Rochester February 1999, revised February 2002.