Financial Risk Assessment
Formulate strategic decisions based on a financial analysis of organizational performance.
Scenario
You are the Financial Executive for TF Partners, an electric car battery manufacturer, and you have been tasked to create a financial risk assessment. This risk assessment will be used in your monthly performance discussion with the COO and CEO. TF Partners has been profitable throughout the economic downturn; however, a global pandemic's impact has caused suppliers to delay sending raw materials and other goods needed to produce your product. The company's current strategic objective is to increase profits by 15%, reduce the use of inefficient assets by 10%, and increase organizational sustainability by 5% through investment in green initiatives.
Instructions
In Microsoft Word, create a financial risk assessment document to measure the financial risk and performance of TF Partners. Your financial risk assessment should:
Create a rating system using industry best practices to analyze the financial position of TF Partners (include operating, financing, and investing activity categories)
Create a rating system using industry best practices to evaluate the risk to maximize the goals of TF Partners listed above
Based on the risk assessment, make a recommendation of the financial strategies TF Partners can use to increase organizational performance
Provide attribution for credible sources
Sample Solution
Financial Risk Assessment Introduction TF Partners is an electric car battery manufacturer that has been profitable throughout the economic downturn. However, the global pandemic has caused suppliers to delay sending raw materials and other goods needed to produce the company's products. As a result, TF Partners is facing some financial risks. This financial risk assessment will be used in the monthly performance discussion with the COO and CEO. The assessment will measure the financial risk and performance of TF Partners. It will also create a rating system using industry benchmarks to identify areas where the company can improve its financial performance.Full Answer Section
Financial Risks The following are the financial risks that TF Partners is facing:- Supply chain disruptions: The global pandemic has caused suppliers to delay sending raw materials and other goods needed to produce TF Partners' products. This has led to production delays and increased costs.
- Increased competition: The electric car market is becoming increasingly competitive. This is putting pressure on TF Partners to reduce costs and improve its products.
- Regulatory changes: The government is considering new regulations that could impact the electric car market. These regulations could increase the cost of doing business for TF Partners.
- Profit margin: Profit margin is the percentage of sales that remains after all costs are deducted. TF Partners' profit margin has declined from 10% in 2020 to 8% in 2021.
- Return on equity: Return on equity is the amount of profit that a company generates for its shareholders. TF Partners' return on equity has declined from 15% in 2020 to 12% in 2021.
- Debt-to-equity ratio: Debt-to-equity ratio is a measure of a company's financial leverage. A high debt-to-equity ratio means that a company is more reliant on debt to finance its operations. TF Partners' debt-to-equity ratio has increased from 1.0 in 2020 to 1.2 in 2021.
- Low risk: 0-1
- Medium risk: 2-3
- High risk: 4-5
- Reduce supply chain risk: TF Partners should work with its suppliers to reduce the risk of delays and disruptions. This could involve diversifying its supplier base or investing in inventory.
- Increase market share: TF Partners should focus on increasing its market share in the electric car market. This could involve expanding its product offerings or investing in marketing and sales.
- Reduce costs: TF Partners should focus on reducing its costs. This could involve negotiating better prices with suppliers or streamlining its operations.
- Invest in green initiatives: TF Partners should invest in green initiatives to improve its sustainability and reduce its environmental impact. This could involve investing in renewable energy or developing new battery technologies.