Financial analysis is a multi-pronged process used to identify possible financial strengths or weaknesses inherent within a business plan, project, or product (Wheelen & Hunger, 2000). In many instances, financial analysis is employed to determine product safety parameters or, more specifically, the risk associated with introducing a product to market. As Zwass (1992) has noted, financial accounting functions are integral to all aspects of the product development and life cycle processes. Financial analysis can be used in determining the degree to which any product or service is accompanied by risk û risk of defect, leading to possible liability for the manufacturer or seller.
According to Clarkson, Miller, Jentz, and Cross (2004), product liability refers to the liability incurred by manufacturers and sellers when product defects cause injury or even property damage to consumers, users, or bystanders. The notion of strict liability holds that a manufacturer is liable for injuries caused by defects in its products to parties with whom the manufacturer had a contractual relationship regarding the product (Meiners, Ringleb, & Edwards, 1994). To be successful in a strict liability lawsuit, an inured party must show that the product was defective, that the defect created an unreasonably dangerous product, and that the defect was the proximate cause or a substantial factor in bringing about the injury (Meiners, et al, 1994).
Many manufacturers use financial analysis to determine what costs such injuries or defects might impose upon their firm. Financial analysis also rests upon the recognition that assumption of risk can sometimes be used as a defense in a product liability action. Clarkson, et al (2004) state that to establish such a defense a defendant must show that the plaintiff knew and appreciated the risk created by the product defect and that the plaintiff voluntarily assumed the risk even tho