Question

What were your key takeaways/conclusions for the Assessing a Firm's Future Financial Health case? How might you apply this to your current job role or in a future job role?

Please answer my two questions, in details. Thank u in advance

Answer 1

a) Following are the key factors to be considered for assessing a firm's future financial health-

1.  The starting point for assessing a firm’s future health begins with step 1 or an investigation of the firm’s goals, strategies, and operating characteristics. A thorough investigation should be conducted to fully understand management’s goals for the firm and each of the product lines in which it chooses to compete. Also, Management should ensure that all assets are being used efficiently, which also displays their operational characteristics.

2. The outlook for the market is very important aspect. The market should have a potential for growth to facilitate an increase in sales and revenue in the future. In addition, competitive forces should be considered. A market that is too heavily saturated can force a firm to lower prices, thus, cutting into margins. The market’s volatility and predictability should also be considerably taken into account

3. The third important factor to consider is the current value of the investments to support the firm's product market strategy. The product-market strategies require investments in accounts receivable, inventories, equipment, or possibly acquisitions. In addition, the value of these assets over the next two to three years should also be estimated

4. Another important aspect is that the firm must have a profitable outlook for the future. The level of profitability has a strong influence over several vital financial elements. First, the firm’s access to debt finance is heavily influenced. Second, the value of the firm’s common stock and the willingness to issue it is affected. Third, the firm’s “sustainable sales growth” decides the level of profitability.

5. A firm's dependency on external financing in future also plays an important role in assessing the future financial health.External financing can be in the form of loans, debt issues, or the sale of shares of stock.Management should develop pro forma income statements and balance sheets for the next two to three years, which will help to identify the tentative spot of time when and how much the funds will be required in upcoming financial years.

6. Last but not the least is the ratio analysis, which act as financial indicators of the company's performance and future outlook. Important ratios which can be used are liquidity ratios, Asset management ratios, Debt Management ratios, profitability ratios, Market value ratios etc

b) If I would be doing a job in an organisation, it would be very important for me to assess and consider the future financial health of the company using the above strategies, because that will help me to know about my job security, growth in the compensation and learning new concepts and technologies in the long run. My job role will also evolve and grow only if the company has a strong future financial health and robust growth potential over the horizon of next 5 years. The top management of the company should be reliable and committed, and company should have enough investment funds to meet its future growth plannned expenditures, which will keep employees motivated to take up new chcallenges and new job roles for overall development of the compnay.