Financial Management Case Study

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Sonic Healthcare Limited's 2008 Annual Report can be found on their website at: www.sonichealthcare.com/investor-information/annual-report.aspx. The following information can be located in this report.

| |Pages | |Income Statements |46 | |Balance sheets |47 | |Cash flow statements |49 | |Notes to the financial statements |50-62 |

In addition to the above, the following year 2006 information is extracted from Sonic Healthcare Limited's 2006 Annual Report and provides the 2006 values for certain items. This information is needed to calculate some of the comparative ratios for 2006:

|Item |2008 Value 2 |2007 Value 2 |2006 Value 1 | | |$’000 |$’000 |$’000 | |Shareholders' equity |$1,962,079 |$1,438,445 |$1,302,345 | |Number of ordinary shares |326,845,998 |297,247,195 |295,203,095 | |Total assets |$3,629,001 |$2,900,462 |$2,354,387 | |Inventories |$41,342 |$32,429 |$26,926 | |Receivables |$314,151 |$247,601 |$197,553 | |Current Assets |$447,843 |$341,399 | | |Current Liabilities |$831,193 |$705,582 | | |Cash Flow from Operations |$331,885 |$267,935 | |

1 Taken from 101 Info Kit SP2 2009
2 Taken from the Consolidated Balance Sheet for the year 2008

Sonic Healthcare Limited's share price was $15.06 in 2007 and $14.55 in 2008.

Using consolidated figures, the following ratios are derived for the year 2007 and 2008.

Short-term solvency or liquidity ratios

a) Current ratio
Current Ratio is termed as a liquidity ratio that measures company’s ability to pay short-term obligations. (http://www.investopedia.com)

Formula:Current Ratio = Current Assets / Current Liabilities

2007:
Current assets = $341,399,000
Current liabilities = $705,582,000
Current ratio = $341,399,000 / $705,582,000
= 0.483854

2008:
Current assets = $447,843,000
Current liabilities = $831,193,000
Current ratio= $447,843,000 / $831,193,000
= 0.53879544

b) Quick ratio
Quick ration is termed as an indicator of the company's short-term liquidity. The quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio, the better the position of the company. (http://www.investopedia.com)

Formula:Quick Ratio = (Current Assets – Inventories) / Current Liabilities

2007:
Current assets = $341,399,000
Inventories= $32,429,000
Current liabilities = $705,582,000
Current ratio = ($341,399,000 - $32,429,000) / $705,582,000 = 0.437894

2008:
Current assets = $447,843,000
Inventories= $41,342,000
Current liabilities = $831,193,000...
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