Financial Risk Analysis

This part of the assessment integrates technical product information and the market study into one or more financial models.

The objective is to determine if the technology offers sufficient profit potential to spend more time and money on additional research and development. The researcher determines if the technology has long-term growth potential, provides a superior return on investment for an investor, and will have a sufficient cash flow to repay loans to potential lenders.

Outcomes

• Financial Need. What are your start-up capital requirements? What are your working capital requirements? What are your fixed cost requirements?
• Profit Margins. Does the technology opportunity present sufficient profit margins to justify a business venture?
• Positive Cash Flow. How long will it take to achieve a positive cash flow?
• Break-even Point. What are the break-even point scenarios for the opportunity based on unit prices, volume of sales, and costs?
• Return on Investment. Is the financial return sufficient to justify the effort and investment?
• Funding Sources. Has initial funding or seed capital sources been identified for the next phase?
• Risks. What are the risks? How will they be managed?

Information Resources

Looking at the financials of similar/competing companies can provide a context and comparable ratios for your financial model. Companies you have identified during the industry analysis may range from small private companies to large public corporations. There is lots of information available on the public companies, very little on the private.

Public vs. Private

Public companies sell securities (stocks) to the public and must report financial results and provide information to the regulatory authorities and investors.

Private companies don’t have to disclose financials or provide details of their business to anyone.

Profiles and summary financials for public companies are found in:

• Factiva (use Companies/Markets>Company search)
• FP Advisor - Canadian company financials and history
• Hoover’s - mostly U.S. companies

Annual reports are on company websites and filed with regulators:

• SEDAR Canadian public company filings since 1997
• EDGAR U.S. and some international public companies since 1994, ’10K’ reports are longer, more detailed annual reports, ‘10Q’s’ are quarterly reports.

Financial ratios vary by industry. See:

• Industry Norms and Key Business Ratios - Canada
  An Excel spreadsheet containing Dun and Bradstreet financial ratios for small, medium and large Canadian companies, organized by SIC code. Accessible only from workstations in Stauffer Library.
• Value Line Investment Survey
  Single-page summary and outlook for U.S. and large international companies, also industry outlooks.
  Stauffer Reference HG4501 .V26

Online at http://library.queensu.ca/db_access/valueline.htm
(we subscribe to the ‘Standard Edition’, see Ratings & Reports)

Based on U.S. financial statements, arranged by SIC code, the books listed below provide benchmark ratios enabling comparison relative to other companies in the same line of business

• RMA annual statement studies
  Stauffer Reference HF5681.D39 .R6t
• Almanac of business and industrial financial ratios
  Stauffer Reference HF5681.R25 A45
• Industry norms and key business ratios (Dun & Bradstreet)
  Stauffer Reference HF5681.R25 I53