assessing financial health

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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…show more content…
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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