Assessing a Company's Financial Future

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Assessing a Company’s Future Financial Health It is detrimental for higher-level management in a company to assess the long-term financial health of the institution. Throughout history there have been depictions of several corporations taking on lucrative and highly ambitious initiatives to increase the wealth of the company. These companies come to find out their programs could not be funded as anticipated. This paper will show how proper strategy and a step –by-step process will successfully be able to assess a company’s financial future. In this case we will be looking at performance measures based upon the income statements and balance sheets of SciTronics (A medical device company). It is imperative that the measures are…show more content…
Its ROE was 18.67%, which represented an improvement from the 8.20% earned in 2005. Figure A below: * This figure shows an initial decrease in the profit as a percentage of sales however are followed by a steep increase in 2008. Profitability is quite obviously very important to a company. It allows the company to have access to debt, have a proper valuation of the company’s common stock, the ability to finance its own programs, and the pervasiveness of management to issue stock. This is depicted in Figure A as an indefinite increase from 05-08. Figure A Figure B * Return on equity indicates how profitable SciTronics is utilizing shareholders’ funds. (Piper, 7) To shareholders of a company, this is equally as important as EBIAT. (2) Asset Management Measures A company must use Activity ratios to determine how well it is using its assets. If improper use of assets occurs there is a need for financing for the company. This is turn leads to more interest costs and also brings about lower return on capital. * Total asset turnover for SciTronics in 2008 can be calculated by dividing $244,000(net sales) into $159,000. The turnover deteriorated from 1.58 times in 2005 to 1.53 times in 2008 * SciTronics has $66,000 invested in accounts receivables at year-end 2008. Its average sales per day were $668.49 during 2008 and its average collection period was 98.73 days. This represented an improvement
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