FIN 320 4-2 Case study

docx

School

Straighterline *

*We aren’t endorsed by this school

Course

320

Subject

Finance

Date

Jan 9, 2024

Type

docx

Pages

2

Uploaded by jamieastudillo469

Report
Jamie Astudillo FIN 320 Principals of Finance Southern New Hampshire University 4-2 Case Study: Assessing a Company’s Future Financial Health It's critical to take into account all potential liabilities and risks when evaluating a company's ongoing financial health in order to develop successful strategies and objectives. Finance carries risks at all times, so every choice must be carefully considered in light of how it will affect the overall financial health of the business. Every decision has an effect on multiple areas, so even company employees and finance analysts/managers should always take risk into account. A business may encounter two different kinds of risk: unsystematic risk and systematic risk. Every risk has a unique effect on the business’s ability to maintain its financial stability. The result of external, uncontrollable factors that are not specific to any one industry or security, systematic risk impacts the entire market and causes price fluctuations across all guarantees. Every business endeavor involves some level of risk, and effectively managing that risk is essential to the operation and success of the enterprise. On the other hand, the management of a company has varying degrees of control over risk. Certain risks are largely out of the company's control, while others can be managed. Often, an organization's best course of action is to anticipate potential hazards, evaluate the possible effects on its operations, and have a strategy in place for handling unfavorable situations. In the case study, the business needed $126 million in outside funding to sustain a 25% increase in sales. The increase in assets will make it more difficult for the business to obtain outside funding, and it may be difficult to achieve the 25% increase in sales if the interest rate is not low or at a level that the business can afford. On the other hand, they could lend enough to finance an increase in comprehensive benefits in order to
meet goals if interest rates were low and lending money to advance is not expensive. Economic risk is the chance that changes in macroeconomic conditions could affect the prospects of an investment or a company operating in a foreign or domestic market. All of these activities, depending on the necessary laws and regulations, can have a favorable or negative effect on a business. Credit risk, or the risk businesses take on when they give customers credit, is another related risk. The company may have to sell one of its assets to cover a financial obligation if it is unable to meet. That suggests that their obligations exceed their assets, which is disastrous for any company's bottom line. Operational risk refers to the various risks that are associated with a company's routine business operations. Less sales growth may have an impact on the company's retained earnings and dividend policy since it won't require outside funding to help offset the increase in liabilities. For instance, SciTronic wouldn't require outside funding if sales increased by 5% in order to maintain their liabilities below their assets. Higher sales growth, however, might have an impact on SciTronics' dividend policy and retained earnings because they would require outside funding to help offset the cost of rising liabilities. Based on these three points and the company producing a 25% increase in sales, they will require an external financing company. For example, in 2008, the company have witnessed its return on equity increase from 8.11% in 2005 to 18.66%, increasing 10.56%. All in all, shareholders are pleased, and the company can secure more earnings with invested money from its shareholders. With dividends compensated to shareholders, the remaining earning after paying the returns to retained earnings means that the company is continuing successfully.
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
  • Access to all documents
  • Unlimited textbook solutions
  • 24/7 expert homework help