Evaluating_the_Financial_Health_of_a_Company

Evaluating_the_Financial_Health_of_a_Company - Evaluating...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Evaluating the Financial Health of a Company General managers are required to judge the financial condition of companies for many reasons: to evaluate the performance of managers; to assess the robustness of a competitor, supplier, or customer; to identify business risks; and to illuminate investment or acquisition decisions. This note summarizes a few key ideas with which a general manager might direct the analytical process. A manager usually wants to know how healthy the company is. Using a medical metaphor, we may characterize a company as being ill, healthy, or fit. What matters is where the firm lies on the spectrum of health. The following questions help expose the company’s condition: 1. Is the company in, or approaching, financial difficulty? Most companies are not in financial distress, but it makes sense to check for this possibility immediately as a way to eliminate at least one end of the spectrum. Firms in financial difficulty display several of the following conditions: a. Low or negative earnings. Profitability ratios, which are based on net earnings and operating earnings, can reveal difficulties in the firm’s ability to cover its costs. b.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.

Page1 / 2

Evaluating_the_Financial_Health_of_a_Company - Evaluating...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online