Assessing a Company’s Future Financial Health

1701 words 7 pages
Joe Tagliaboschi
EMBA 222 Managerial Accounting
November 3, 2013

Assessing a Company’s Future Financial Health SciTronics is a medical device company. This financial evaluation will cover the period from 2005 through December 31, 2008. The evaluation will include a review of the profitability, use of assets, and financial leverage metrics. This company appears to be financially healthy and has shown improvement in many of the metrics reviewed. The company has little long term debt, and adequate cash and owners’ equity balances. However, there are also some metrics that reveal that without some additional adjustments, the growth experienced in the past may not be sustainable. This evaluation will answer the following
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This number reveals an efficient use for the plant and /or equipment. But this ratio is not definitive enough to point to this factor alone as the reason for the decline. Unfortunately, we were not able to determine why 2008 Total asset turnover did not surpass that of 2005. In the ratios and data that I calculated and reviewed, the results returned mixed results at best. What is clear, is that the company is not making efficient or effective use of the assets. This may be indicate that company may face some difficulty when looking to secure financing in the event that a loan is needed.

Leverage Rates and Liquidity The leverage ratios are the methods to determine if SciTronics has the financial leverage it needs to get the best terms in the event that outside financing is required. If a company is viewed as reasonably profitable it will find financing at terms that allow the company to leverage assets and most likely, expect a gain, and a return on equity. However, there is some risk involved if a company overextends itself, and the company may find itself in financial distress if used to excess. So it is prudent to make an effort to calculate leverage. The total assets ratio has improved to 2.1 in 2008, this is up from 1.5 in 2005. This indicates that the company is leveraging $2.00 for every dollar of owners’ equity. When this is also compared to the financial leverage ratio of 53% in 2008 versus the 34% in 2005 it supports the case that the


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