Assessing a Company's Future Financil Health

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R E V: MAY 2 8 , 2 0 1 2
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
Figure AThe Corporate Financial System
Analyze Goals
Step 1
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

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