assessing financial health

929 Words Sep 19th, 2014 4 Pages
Step 1,2: Analyze Fundamentals
Step 3: Analyze Investments to Support the Business unit(s) Strategy(ies)
Step 4: Assess Future Profitability and Competitive Performance
• What has been the average level, trend, and volatility of profitability?
• Is the level of profitability sustainable, given the outlook for the market and for competitive and regulatory pressures?
• Is the current level of profitability at the expense of future growth and/or profitability?
• Has management initiated major profit improvement programs? o Are they unique to the firm or are they industry wide and may be reflected in lower prices rather than higher profitability? o Are there any “hidden” problems, such as suspiciously high levels or buildups of
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Its fixed asset turnover ratio in 2008 was 13.56 times, deterioration from 16.33 times in 2005
Leverage
• SciTronics’ ratio of total assets divided by owners’ equity increase from 1.52 at year-end 2005 to 2.12 at year-end 2008.
• At year-end 2008, SciTronics’ total liabilities were 58.23% of its total assets, which compares with 34.41% in 2005.
• The market value of SciTronics’ equity was $175,000,000 at December 31, 2008. The total debt ratio at market was .32.
• SciTronics’ earnings before interest and taxes (operating income) were $26,000 in 2008 and its interest charges were $2,000 Its time’s interest earned was 13 times. This represented an improvement from the 2005 level of 10 times.
• SciTronics owed its suppliers $6,000 at year-end 2008. This represented 8.10% of cost of goods sold and was a decrease from 11.60% at year-end 2005. The company appears to be more prompt in paying its suppliers in 2008 than it was in 2005.
• The financial riskiness of SciTronics decreased between 2005 and 2008.

Liquidity
• SciTronics held $133,000 of current assets at year-end 2008 and owed $48,000 to creditors, due to be paid within one year. SciTronics’ 2008 current ratio was 2.77, a decrease from the ratio of 3.9 at year-end 2005.
• The quick ratio for SciTronics at year-end 2008 was 2.17 a decrease from the ratio of 2.9 at year-end 2005.
Profitability Revisited
• The improvement in SciTronics’
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