Analysis of the capacity to pay, Financial Management

In addition to management quality, an assessment of the financial capacity of a company should also include an evaluation of trends, regulatory environment, basic operating and competitive positions, financial position etc.

Businesses can have a bad year without resulting in financial difficulty. Evaluating trends over a three to five year period will give a clear picture of the direction a firm is heading to. Profitability over time is an excellent indicator of management's efficiency. Raising revenue will not help if the firm cannot control costs. A reduction in expenses may have a minimal impact if revenues do not increase. A host of questions can be answered with a thorough analysis of a company's financial capacity. Ratio results should always be compared to a peer group for an industry comparison to answer questions like: Is the firm collecting faster or slower than the rest of the industry? Is this company more profitable than other companies or just like them?

  1. Industry Analysis: Analyzing industry trends provides important indications of future profitability, asset values, upcoming financing needs, and potential liabilities. For companies that operate in several industries, it is critical that each major business segment is analyzed separately, looking at each Industry from a global perspective. In considering industry trends, analysts look at the vulnerability of the company to economic cycle, globalized commodity pricing, domestic and global competition, barrier to entry, cost factor and the vulnerability to technical changes.

  2. Traditional Ratios: Traditional ratios evaluate the ability of an issuer to meet its obligations and include:

  • Profitability ratios

  • Debt and coverage ratios.

Posted Date: 9/10/2012 9:16:51 AM | Location : United States







Related Discussions:- Analysis of the capacity to pay, Assignment Help, Ask Question on Analysis of the capacity to pay, Get Answer, Expert's Help, Analysis of the capacity to pay Discussions

Write discussion on Analysis of the capacity to pay
Your posts are moderated
Related Questions
Discuss the applicability of the operating cycle to poultry business in Uganda(consider broilers)

Monte Carlo Simulation Model Monte Carlo simulation is used to analyse to what extent the valuation of the chosen company is dependent on the assumptions. Monte Carlo simulati

VK Ltd a multi-product Company, furnishes you the following data relating to theyear 2000.First Half of the year Second Half of the yearSales Rs. 45,000 Rs. 50,000 Total Cost Rs. 4

Market development A strategy which seeks to sell existing products in new geographical markets or new market segments. A strategy to find new uses for existing products or ser

Q. Explain about Baumol Model? Baumol Model: - Baumol model is a mechanism of cash management which is used to determine optimum cash balance. Optimum cash balance is resolute

Explain about the term- Contingent liabilities Under IAS 37 provisions, contingent assets and contingentliabilities, contingent liabilities aren't recognised in the financia

IFRS 3 Business combinations necessitate goodwill on gaining to be calculated at the date control is gained. The second gaining gives ROB a 75% holding and consequently control o

Q. Problem in computation of retained earnings ? Problem in computation of retained earnings: it is sometimes argued that retained earning do not involve any costs. But in the

Question #1: Review the Anthony’s Orchard case study in the unit resources. Consider the following assumptions: • The company, according to Anthony’s Orchard Strategic Plan, is h

Q. Describes the Gordons dividend model? Gordon's Model: - Gordon's model is one more theory which contends that dividend policy is relevant for the value of the firm. Alternat