Assessing a Company's Financial Future Essay

1031 Words Oct 11th, 2012 5 Pages
Assessing a Company’s Future Financial Health Case Analysis

Executive Summary
A firm’s ability to analyze its long-term financial health can become a key asset for management as it formulates new, and/or revises old, strategies and goals. The key goal of management is to anticipate future imbalances in its financial systems before a negative result occurs within its financials. As the HBR case describes, “Management must ensure the continuity of the flow of funds to all of its strategically important programs, even in periods of adversity.” This is true in business but also in everyone’s personal life. There will always be ups and downs in life, but everyone as an individual must prepare for these obstacles and continue to
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Its return on capital was 13.66% in 2008, which represented an increase from the 7.72% earned in 2005.

4. SciTronics had $75 mil of owner’s equity and earned $14 mil after taxes in 2008. Its return on equity was 18.67%, which represented an improvement from the 8.20% earned in 2005. (ROE2008 = 14 mil/75 mil and ROE2005 =5 mil/61 mil)

Activity Ratios
1. Total asset turnover for SciTronics in 2008 can be calculated by dividing $159 mil into $244 mil. The turnover deteriorated from 1.58 times in 2005 to 1.53 times in 2008.

2. SciTronics had $66 mil invested in accounts receivable at year-end 2008. Its average sales per day were $668,493.15 during 2008 and its average collection period was 98.73 days. This represented an improvement from the average collection period of 104.29 days in 2005.

3. SciTronics apparently needed $29 mil of inventory at year-end 2008 to support its operations during 2008. Its activity during 2008 as measured by the cost of goods sold was $74 mil. It therefor had an inventory turnover of 2.55 times. This represented an improvement from 2.05 times in 2005. (Inv. Turnover2008 = 74 mil/29 mil and Inv. Turnover2005 = 43 mil/21 mil)

4. SciTronics had net fixed assets of $18 mil and sales of $244 mil in 2008. Its fixed asset turnover ratio in 2008 was 13.56 times, a deterioration from 16.33 times in 2005. (FA Turnover2008 = 244 mil/18 mil and
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