Assessing a Company’s Future Financial Health|Essay pro
Posted: January 25th, 2023
Overview
People should understand the impact of different types of risk on financial health, whether they’re dealing with personal or corporate finances. The risks for personal finance often only affect individuals and families. These risks come up, for example, when deciding whether you can afford to buy a house or invest in stocks. Financial risks for businesses often affect multiple people throughout the entire company. This includes individuals who do not work in the finance department. When businesses make finance-related decisions, it’s important that they know how their decisions affect all parts of their company.
Prompt
Read the Assessing a Company’s Future Financial Health case study. Then write a response.
Specifically, you must address the following rubric criteria:
- Systematic and Unsystematic Risk: Explain the differences between systematic and unsystematic risk.
- Financial Risks: Describe the potential impacts of the following types of financial risk on the company featured in the case study:
- Interest rate risk
- Economic risk
- Credit risk
- Operational risk
- Lower Growth Impact: Explain the impact that a lower growth in sales could have on the dividend policy and retained earnings for the company described in the case study.
- Higher Growth Impact: Explain the impact that a higher growth in sales could have on the dividend policy and retained earnings for the company described in the case study.
What to Submit
Your submission should be a 2- to 3-page Word document with 12-point Times New Roman font, double spacing, and one-inch margins. Sources should be cited according to APA style.
SOLUTION
and not just the finance department. Some examples of risks that can affect businesses include credit risk, market risk, and operational risk. Credit risk refers to the potential loss of a company’s assets due to a borrower’s inability to repay a loan. Market risk is the potential loss due to changes in the value of a company’s assets or liabilities caused by market conditions such as interest rate changes, currency fluctuations, and commodity prices. Operational risk is the potential loss due to the failure of internal systems, processes, or human errors. Understanding these risks and how they can affect a business is essential for making informed financial decisions that can mitigate potential losses and help the company achieve its financial goals.
Systematic risk, also known as market risk, is the risk that is inherent to the entire market and cannot be diversified away by holding a portfolio of assets. This type of risk is caused by factors such as changes in interest rates, economic downturns, or political events.
Unsystematic risk, also known as specific risk or diversifiable risk, is the risk that is specific to a particular company or industry. This type of risk can be diversified away by holding a portfolio of assets. Unsystematic risk is caused by factors such as poor management, a strike, or a natural disaster.
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