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
Most of the time, an investor buys a bond between coupon payments. In such transaction, the buyer must compensate the seller of the bond for the

Project Plan for my new business venture is attached) 1.     Your task is to take a look at every of the operational areas of the intended business, and verify  what financial i

Active Portfolio Strategy: An active portfolio strategy is tracked by most aggressive investors and investment professionals who strive to make superior returns, after adjustm

The case of McKesson & Robbins scandal (1938) was happen due to internal fraud. This case is also happen by the faulty work of board of directors. The organization of McKesson & Ro

discuss the applicabilty of the operating cycle in a vegetable growing business

Advantages and disadvantage of pacipatory style of budgeting

A Video Rental store has two employees. The Supervisor is paid $2,200 per month. The other employee, Mark is paid $1,200 per month. In addition, Mark is paid a commission of 20 cen

INSTRUCTIONS Download the 2011 Annual Report for Marks and Spencer PLC, from the link provided on Study Space. Review the Annual Report, paying particular attention to the Fin

Question 1 Explain the components of Indian Financial System Question 2 Write a short note on Primary and Secondary markets Question 3 Explain the Investment optio

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