Assessing a Company’s Future Financial Health

Submitted on September 6, 2011

SECTION 1:
Sales Growth 1. During the four-year period ended December 31, 2008. SciTronics’ sales grew at 21% ($244,000/$115,000) = (1+r) ^4 compound rate. There were no acquisitions or divestitures.

Profitability Ratios: How Profitable Is the Company 1. SciTronics’ profits as a percentage of sales in 2008 were 5.73% (14,000/244,000).

2. SciTronics’ profits as a percentage of sales in 2005 was 3.44 %( 5,000/147,000). This represents an increase of 2. 29% from 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) …show more content…
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.

SECTION 2:

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 means that shareholders are more satisfied and the company is able to earn more profits with shareholder’s invested money.

In terms of the firm’s activity ratios, the turnover decreased from 1.58 times in 2005 to 1.53 in 2008. This decrease was due to the large growth in assets over the past 4 years. Although the assets increased by 66 million over the past 4 years, the turnover only decreased by .05. The firm saw an improvement in its average college period and