Module 03 Discussion - An Accurate Picture of Financial Health Most businesses r

Question

Module 03 Discussion - An Accurate Picture of Financial Health

Most businesses require some type of capital infusion at some point, especially if there are plans for expansion. Securing that capital requires detailed documentation of the company's financial position.

Do statements of financial position and financial ratios really provide an accurate picture of the financial health of a venture? If the venture is a start-up and there is no financial history, how do funding sources determine the potential for success of the venture?

Explanation / Answer

Financial Statement of any organization is one of the most important reference or document that determines the position of the company in terms of Revenue, Income, Growth, Net Worth,etc. The financial document is also the reference which an investor refers to while investing in an organization because the investor is not here to do charity, instead it wants a return of the investment it made and the return should be profitable. Each and every organization maintains daily balance sheet of transactions and these documents are very much important while doing the final analysis and it is very much obvious that the Investor will be satisfied with just the data.

The accurate picture of the financial health depends on various other factors except financial ratios and the Investor has to keep a note of them in order to make his investment count. Established organizations do not experience much difficulty in gathering investors because they possess a position in the industry and their reputation helps them attract investors, it has also been observed that investors queue up in order to invest in a particular organization because they are sure that the return of Investment will be positive. If the organization is a product based industry then infrastructure is a factor because in today's developing world where systems are getting obsolete every day the organization also has to adapt and be flexible in order to sustain in the industry. Marketing strategy is another factor because without proper and effective marketing strategy, no organization can be successful and this is also a factor in determining the financial health of the venture. Acceptability of the brand among consumers because if this is present then investment is safe because consumers or customers rely on the brand.

If the venture is a start up then there are other factors to determine the potential. they are:

Start-up are analyzed based on the above parameters because they are new in the market and the investor has to do a good round of background verification before investing.

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