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Week 4 Discussion: Financial Risks And Operational Risks

Name of Student

Institutional Affiliation

Course Name and Number

Instructor

Date
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Question 1.

The Z Score is a useful tool for evaluating a company's financial risk and health.

Developed by Edward Altman, it helps predict bankruptcy by combining different measures and

ratios to attain a single numerical value that determines the financial stability of a company.

Some of the ratios and measures taken into account include solvency, leverage, liquidity, and

profitability ratios. Their analysis quantifies the overall financial health while indicating the

vulnerabilities in the company. To determine health, a lower Z Score indicates a higher

probability of bankruptcy, with a higher score means financial stability. According to the news,

J. C. Penney is among the recent companies with a bankruptcy crisis. It is a renowned retailer

and department chain store that filed for bankruptcy in May 2020 (Kelly, 2021). This was a case

of accruing and underlying challenges with notable red flags, including sales decline, high debt

levels, and the impact of COVID-19.

Question 2.

Other than supplier risk, a company can also face demand and process risks. On the one

hand, there are several process risks that it can be vulnerable to. This includes low manufacturing

yield, which can be mitigated by optimizing processes, encouraging continuous improvement,

and quality control (Schlegel & Trent, 2016). It can also be mitigated by analyzing bottlenecks,

inefficiencies, and defects. Information delays are another process risk that can be mitigated

using ERP systems for communication with real-time data sharing. Integrated systems like this

help monitor supplier performance with other alternatives, including setting backup channels. On

the other hand, the business may also face demand risks such as customer bankruptcy. This can

be mitigated by diversifying the customer base and regular credit checks. It can also face

customer loss risks which can be mitigated by having customer retention programs and
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continuous market research. These strategies help mitigate these risks and ensure the effective

running of the business.

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References

Kelly, J. (2021, January 8). J.C. Penney’s sad story of going broke slowly, then suddenly. Forbes.

https://www.forbes.com/sites/jackkelly/2021/01/08/jc-penneys-sad-story-of-going-broke-

slowly-then-suddenly/.

Schlegel, G. L., & Trent, R. J. (2016). Supply chain risk management: An emerging discipline.

CRC Press. https://doi.org/10.1201/b17531.