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FACTORS AFFECTING FINANCIAL HEALTH3Capital Structure and Capital Adequacy3Operating Cash Flows and Cost Structure4Asset Conversions Growing Broke5Asset Utilisation EfficiencyTurnover5Other Statistical Failure Prediction Models10Alternative Models - Artificial Neural Networks12A company trying to achieve its business plan faces problems similar to those faced by a driver embarking on a long trip The likelihood that car and driver will reach their destination is dependent on 1 how much fuel is in the cars tank upon starting out 3 how many service stations will be available to refill the cars fuel tank along the way and 4 whether the cars fuel tank is large enough to cover unexpected accidents delays and detours along the waySimilarly whether or not a company survives in a highly competitive business environment is dependent upon 1 how financially healthy the corporation is at its inception 2 the companys ability and relative flexibility and efficiency in creating cash from its continuing operations 3 the companys access to capital markets and 4 the companys financial capacity and staying power when faced with unplanned cash shortfallsThere is no single measure of financial health Ideally solvency could be measured along a continuum in the same way that fuel sufficiency can be measured using a cars petrol gauge Full health would equate with having a full tank of fuel Poor health would be equivalent to showing an empty tank As healthiness progressively decreased the solvency gauge would register movement in the direction of relative insolvency Ultimately as healthiness continues to decline the solvency gauge would hopefully flash a warning lightSince in the real world no single measure of financial health exists proxies that measure various aspects of solvency are often combined to estimate a companys healthiness at a point in time As a financially healthy company becomes more and more financially distressed it ultimately enters an area of great danger Changes to the companys operations and capital structure ie restructuring must be made to remain healthy Apple Computers attempts in
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