Diagnosing the Financial Health of a Business (Open2Study)

Diagnosing the Financial Health of a Business (Open2Study)
Learn to assess the strength of a business and identify early warning signs of potential future problems. This subject shows how financial reports provide a wealth of information into the performance of a business, and how they can be used specifically to identify early warning signs of potential future problems. We will see that a profitable business may not necessarily be performing well or taking the right steps to build for its future. Just as a doctor conducts a diagnosis of a patient and recommends a course of treatment, we will use simple and yet powerful tools to analyse a business and identify where and how things can be improved.

What will you learn?

- How to evaluate the performance of a business with reference to its financial reports.

- How to conduct financial analysis by integrating information across its balance sheet, income statement and cash flow statement (as opposed to viewing data in isolation).

- How to identify early warning signs of potential financial difficulties in a business and thus be forward-looking in your approach.

- How to assess risks in a business by reference to its financial reports.

- How to identify the assumptions and estimates that are made by managers in constructing their financial reports and assess the implications for interpreting the performance of a business.

- How to measure and interpret the sustainable growth rate of a business and identify implications for its future heath.

- How to distinguish between the income statement and the statement of comprehensive income of a business.

- How to measure the operating cash cycle of a business and assess the implications for the funding needs of the business.

- How to determine if a firm is generating appropriate returns on its assets and for its owners.