Assessing a Company's Financial Future

1046 words 5 pages
Assessing a Company’s Future Financial Health Case Analysis

Executive Summary
A firm’s ability to analyze its long-term financial health can become a key asset for management as it formulates new, and/or revises old, strategies and goals. The key goal of management is to anticipate future imbalances in its financial systems before a negative result occurs within its financials. As the HBR case describes, “Management must ensure the continuity of the flow of funds to all of its strategically important programs, even in periods of adversity.” This is true in business but also in everyone’s personal life. There will always be ups and downs in life, but everyone as an individual must prepare for these obstacles and continue to
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2. At year-end 2008, SciTronics total liabilities were 52.83% of its total assets, which compares with 34.41% in 2005.

3. The market value of SciTronics equity was $175,000,000 at December 31, 2008. The total debt ratio at market was 32.43%. (TD @ market = 84 mil/259 mil)

4. SciTronics’ earnings before interest and taxes (operating income) were $24 mil in 2008 and its interest charges were $2 mil. Its times interest earned was 12 times. This represented an improvement from the 2005 level of 9 times.

5. SciTronics owed its suppliers $6 mil at year-end 2008. This represented 8.11% of cost of goods sold and was a decrease from 11.63% at year-end 2005. The company appears to be more prompt in paying its suppliers in 2008 than it was in 2005.

6. The financial riskiness of SciTronics decrease between 2005 and 2008.

Liquidity Ratios
1. SciTronics held $133 mil of current assets at year-end 2008 and owed $48 mil to creditors, due to be paid within one year. SciTronics’ current ratio was 2.77, an decrease from the ratio of 3.90 at year-end 2005.

2. The quick ratio for SciTronics at year end 2008 was 2.17, and increase/decrease from the ratio of 2.90 at year-end 2005. (Quick2008 = (133 mil-29 mil)/48 mil and Quick2005 = (82 mil-21 mil)/21 mil)

Profitability Revisited
1. The improvement in SciTronics’ return on equity from 8.2% in 2005 to 18.7% in 2008 resulted

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