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Assessing A Company Future Financial Health

848 words - 4 pages

Assessing a Company’s Future Financial Health

In this case the concentration is on “Company Performance Measurement”, using the “Ratios”, ‎before we answer to the question, we have to focus a bit on the “Financial Ratios”‎
Sales Growth: The increase in sales over a specific period of time, often calculated ‎annually.‎
In this specific Case, that has asked the Sale growth for the four-year period, can be calculated ‎as bellow;‎
‎ ((Ending Value)/(Beginning Value) )^((1/(# of Year)) )-1 ‎
‎= ($244,000/$115,000) = (1+r) ^4 compound rate, = 21%‎
Profitability Ratios: it shows how profitable the Company is;‎
Profits as a percentage of sales in 2008;‎
Income/Sale = 14000/244000=0.0573*100=5.73%‎
Profits as a percentage of sales in 2005;‎
Income/(Sale )= 5000/147000‎‏ = ‏‎0.0340 *100 =3.4%‎
This shows an increase of 2.3% from the beginning (2005).‎
‎ 3. SciTronics had a total of $112, 000 (75,000+20,000+7,000+10,000) of capital at year-end 2008 and ‎earned before interest but after taxes (EBIAT) 16,000 (26,000-10,000) during 2008. Its return on capital ‎was 14.29% (16,000/112,000) which represents an increase from the 8.11% (6,000/74,000) in 2005.‎

‎ 4. SciTronics had $75,000 of owner’s equity and earned $14,000 after taxes in 2008. Its return on ‎equity was 18.66% ($75,000/$14,000) an improvement from the 8.1% ($5,000/$61,000) earned in 2005.‎

Activity Ratios
‎ 1. Total Assets turnover for SciTronics in 2008 can be calculated by dividing $244,000 (net sales) into ‎‎$159,000 (total assets). The‎
turnover decreased from 1.58 times in 2005 to 1.53 in 2008.‎

‎ 2. SciTronics had $66,000 in accounts receivables at year end 2008. Its average sales per day were ‎‎$668.49 ($244,000/365) during 2008 and its average collection period was 98.73 ($66,000/668.49). This ‎represents an improvement from the average collection period of104.29 ($42,000/402.73) days in 2005.‎

‎ 3. SciTronics apparently needed $29,000 (inventories in 2008) of inventory at year end to support its ‎operations during 2008. Its activity during 2008 as measured by the cost of goods sold was $74,000 ‎‎(COGS). It therefore had an inventory of turnover of 2.55 (74,000/29,000) times. This represents an ‎improvement from 2.04 (43,000/21,000) times in 2005.‎

‎ 4. SciTronics had net fix assets of $18,000 (net fix assets) and sales of $244,000 in 2008. Its fixed asset ‎turnover ratio in 2008 was 13.56 (244,000/18,000), a deterioration from 16.33 (147,000/9,000) in 2005.‎

Leverage Ratios: How Soundly Is the Company Financed?‎

‎ 1. SciTronics’ ratio of total assets divided by owners’ equity increased from 1.52 (93,000/61,000) at ‎year end 2005 to 2.12 (159,000/75,000) at year-end 2008.‎
‎ 2. At year-end 2008, SciTronics’ total liabilities were of its
total assets was 52.83% (48,000+7000+20000+9000/159000), which compares with 34.4% ‎‎(21,000+11,000)/93,000).‎

‎ 3. The market value of SciTronics equity was $175,000,000 at December 31, 2008....

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