SciTronics is a medical device company. In exhibit 1 and 2 financial data sources are given, which are consist of Income Statement, Balance Sheet, and Cash Flow. Financial ratios are useful indicators of a firm's performance and financial situation. Most ratios can be calculated from information provided by the financial statements. Financial ratios can be used to analyze trends and to compare the firm's financials to those of other firms. Financial ratios can be classified according to the information they provide. The following types of ratios are discussed in SciTronics case study: Liquidity ratios
Asset turnover ratios
Financial leverage ratios
By analyzing the financial ratios given for SciTronics and considering the 9 step of corporate financial system below is an attempt for three questions.
What is your assessment of the performance of SciTronics on 2008 versus 2005? SciTronics performance during 2005-2008 periods demonstrates a healthy company considering the Ratios mentioned above. In 2005 SciTronics had a profit of 3.4% (5,000/147,000) and a tremendous improvement happened during 2008 which is a profit of 5.64% (14,000/244,000). We can say that SciTronics profit represents a 2.34% increase from 2005 to 2008.
Return on Equity is another measure of company’s profitability. Comparing the return of equity of SciTronics in 2005 8.20% ($5,000/$16,000) and 2008 18.67% ($14,000/$75,000) represents an increase of 10.47%. It shows that SciTronics utilizes shareholder’s funds in a profitable strategy. In addition calculating the compound annual growth rate of SciTronics in 4 year from 2005 – 2008 gives an improvement of 20.69% which shows consumer satisfaction and market base products. SciTronics performance during 2005-2008 periods demonstrates a healthy company. We can understand this through Profitability Ratios which offer several different measures of the success of the company at generating profit. SciTronics sales increase from $147,000 in 2005 to $244,000 in 2008 which shows an increase of 20.69% on compound annual growth rate. The company profit on sales increase to 5.74% in 2008 from 3.4% in 2005, which shows an increase of 2.34%. Financial Performance
Return on Equity
Profit on Sales
Return on Capital
Return on Equity
Return on capital is another measure of profitability for a company. SciTronics had an increase of 10% in return on capital comparing to 4% in 2005. In addition return on equity which is a measure of the profit earned for each dollar invested by shareholder in a company stock also for SciTronics improved from 8.1% in 2005 to 18.66% in 2008 which shows a difference of 10.56% and is a big achievement of company. Activity Ratios shows how efficiently the firm utilizes its assets. SciTronics had achievement in this regard as well. The total asset turnover ratio for SciTronics shows deterioration from 1.58 in 2005 to 1.53 in 2008. The company had an improvement on collection period of account receivable from 104.92 in 2005 to 98.73 in 2008 besides the company had an improvement on inventory turnover ratio from 2.05 in 2005 to 2.55 in 2008. Question 2:
Has the financial strength and its access to external sources of finance improved or weakened? To answer this question we are going to analyze the financial leverage of the company. Financial leverage demonstrates the dependence and independence of the company to external financing. A better way of analyzing the financial leverage of a company is the analysis of leverage ratios. Leverage ratios provide an indication of the long-term...
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