Essay on Assessing a Company Future Financial Health

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Pages: 5

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
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The financial riskiness of SciTronics decreased between 2005 and 2008.‎

Liquidity Ratios:‎
‎ 1. SciTronics held $133,000 of current assets at year-end 2008 and owed $48,000 to creditors due to be ‎paid within one year. Its current ratio was 2.77 ( 133000/48000 ), a decrease from the ratio of ‎‎3.90 (82000/21000) at year-end 2005.‎

‎ 2. The quick ratio for SciTronics at year end 2008 was 2.16 (133,000-29,000)/48,000), a decrease from‎ the ratio of 2.90 (82,000-21,000/21,000) at year-end 2005.‎

Profitability Revisited
‎ 1. The improvement in SciTronics’ return on equity from 8.2% in 2005 to 18.7% in 2008 resulted from ‎an increase in its return on sales; and an increase in its assets turnover, and an increase/decrease in its ‎assets turnover, and an increase in its financial leverage.‎


Questions to Consider

‎ 1. What is your assessment of the performance of SciTronics during the 2005-2008 periods?‎

In looking at the firms’ assessment from 2005 to 2008, it can be concluded that the firm experienced ‎rapid growth.‎

First, in terms of sales, the firm sales grew great by 21% from 2005 to 2008. In addition, the firm profits ‎as a percentage of sales increased by 2.29% from 2005 to 2008. This means that firm has demonstrated ‎its ability to increase its revenue while reducing its cost. Second, the firm saw its return on equity ‎increased from 8.11% in 2005 to 18.66% increase. This is an increase of 10.56%. This