Assessing a Company's Financial health
In the case of Assessing a Company’s Future Financial Health, the case concentration is on SciTronics, a medical device company, performance measures based on the organization’s three primary financial data sources in Exhibit 1 & 2. Utilizing the 9 steps of corporate financial system, I will be able to analyze the financial health of the company to assess whether it will remain balance over the ensuing 3-5 years. The measures are grouped by focusing on “Financial Ratios” such as: 1.) profitability measures, 2) activity measures, and 3) leverage and liquidity measures. Using the financial data sources, I would be able to make recommendations regarding SciTronics 126 million loan request.
Upon the …show more content…
SciTronics had $75,000 of owner’s equity and earned $14,000 after taxes in 2008. Its return on equity was 18.67%, which represented an improvement from the 8.20% earned in 2005.
Activity Ratios: How Well Does the Company Employs Its Assets? (Refer to Exhibit 6)
1. Total asset turnover for SciTronics in 2008 can be calculated by dividing $244,000 into $159,000. The turnover deteriorated from 1.58 times in 2005 to 1.53 times in 2008.
2. SciTronics had $66,000 in accounts receivables at year-end 2008. Its average sales per day were $668.49 during 2008 and its average collection period was 98.73 days. This represented an improvement from the average collection period of 104.29 days in 2005.
3. SciTronics apparently needed $29,000 of inventory at year-end 2008 to support its operations during 2008. Its activity during 2008 as measured by the cost of goods sold was $74,000. It therefore had an inventory turnover of 2.55 times. This represented an improvement from 2.05 times in 2005.
4. SciTronics had net fixed assets of $18,000 and sales of $244,000 in 2008. Its fixed asset turnover ratio in 2008 was 13.56 times, deterioration from 16.33 times in 2005.
Leverage Ratios: How Soundly Is the Company Financial? (Refer to Exhibit 7)
1. SciTronics’ ratio of total assets divided by owner’s equity increased from 1.52 at year-end 2005 to 2.12 at year-end 2008.
2. At year-end 2008, SciTronics’ total liabilities were 52.8% of its total assets, which compares