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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.


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.


R E V : M A Y 2 8 , 2 0 1 2


Professor Thomas Piper prepared the original version of this note, “Assessing a Firm’s Future Financial Health,” HBS No. 201-077, which is being
replaced by this version prepared by the same author. This note was prepared as the basis for class discussion.

Copyright © 2010, 2011, 2012 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-
800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to This publication may
not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.

Assessing a Company’s Future Financial Health

Assessing the long-term financial health of a company is an important task for management as it
formulates goals and strategies and for outsiders as they consider the extension of credit, long-term
supplier agreements, or an investment in a company’s equity. History abounds with examples of
companies that embarked on overly ambitious programs and subsequently discovered that their
portfolios of programs could not be financed on acceptable terms. The outcome was frequently the
abandonment of programs mid-stream at considerable financial, organizational, and human cost.

It is the responsibility of management to anticipate a future imbalance in the corporate financial
system before its severity is reflected in the financials, and to consider corrective action before both
time and money are exhausted. The avoidance of bankruptcy is an insufficient standard.
Management must ensure the continuity of the flow of funds to all of its strategically important
programs, even in periods of adversity.

Figure A provides a conceptualization of the corporate financial system, with a suggested step-by-
step process to assess whether it will remain in balance over the ensuing 3 to 5 years. The remainder
of this note discusses each of the steps in the process and then provides an exercise on the various
financial measures that are useful as part of the analysis. The final section of the note demonstrates
the relationship between a firm’s strategy and operating characteristics; and its financial

This document is authorized for use only by Ashley Barnes-Bailey in FIN-320-X1195 Principles of Finance 22EW1 at Southern New Hampshire University, 2022.

911-412 Assessing a Company’s Future Financial Health


Figure A The Corporate Financial System

Analyze Goals

Step 1 Strategy

Market, Competitive Techn

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