This website uses cookies to ensure you have the best experience. Learn more

Assessing A Company’s Future Financial Health

1705 words - 7 pages

Joe Tagliaboschi
EMBA 222 Managerial Accounting
November 3, 2013

Assessing a Company’s Future Financial Health
SciTronics is a medical device company. This financial evaluation will cover the period from 2005 through December 31, 2008. The evaluation will include a review of the profitability, use of assets, and financial leverage metrics.
This company appears to be financially healthy and has shown improvement in many of the metrics reviewed. The company has little long term debt, and adequate cash and owners’ equity balances. However, there are also some metrics that reveal that without some additional adjustments, the growth experienced in the past may not be ...view middle of the document...

The 2008 ROE was 18.7% up by over 200% over the 2005 year ROE of 8.2%.


In all ratios reviewed the indication was positive and in some cases the gains were extremely healthy.

Activity Ratios
Activity ratios measure how well SciTronics has utilized their assets. There are several metrics to gauge this success (or lack thereof).
Asset Turnover is one of the ratios I have calculated, and in SciTronics case there was a slight decrease in Asset Turnover. This indicates an ineffective use of assets and could result in additional costs to the company and a lower return on capital. However there is another ratio that helps drill down into which assets may be the source of this negative indicator.
One of the more useful categories for this additional information is Accounts Receivable. The ratio used is the Average Collection Period, and it indicates how many days a company waits to collect on Accounts Receivable. The calculations revealed that the Average Collection Period had dropped to 83 days, from 138 days in 2005. This was a positive sign. However, it still did not reveal what the cause might be for the negative asset turnover ratio.
There two more ratios to look at to search for what the root cause might be for the negative return. The Inventory Turnover Ratio was 2.6 for 2008, up from 2.0 in 2005. This data reveals how many times the inventory was sold in the year, and since it was up a bit it did not help us find the cause of the decline. The last metric was the Fixed Asset Turnover Ratio. This ratio helps determine the efficient use of the plant and the equipment. This number was down to 13.6 in 2008, in 2005 it was 16.3. This number reveals an efficient use for the plant and /or equipment. But this ratio is not definitive enough to point to this factor alone as the reason for the decline. Unfortunately, we were not able to determine why 2008 Total asset turnover did not surpass that of 2005. In the ratios and data that I calculated and reviewed, the results returned mixed results at best. What is clear, is that the company is not making efficient or effective use of the assets. This may be indicate that company may face some difficulty when looking to secure financing in the event that a loan is needed.

Leverage Rates and Liquidity
The leverage ratios are the methods to determine if SciTronics has the financial leverage it needs to get the best terms in the event that outside financing is required. If a company is viewed as reasonably profitable it will find financing at terms that allow the company to leverage assets and most likely, expect a gain, and a return on equity. However, there is some risk involved if a company overextends itself, and the company may find itself in financial distress if used to excess. So it is prudent to make an effort to calculate leverage.
The total assets ratio has improved to 2.1 in 2008, this is up from 1.5 in 2005. This indicates...

Other Papers Like Assessing a Company’s Future Financial Health

, Financial Management of Health Care Organizations and Ethics Are an Important Part of Running a Health-Care Facility

1958 words - 8 pages , Governmental and Public Organizations usually want substantial data to make decisions in regards to the financial stability of health care organizations. For example, to make the decision to finance a home health agency, a financier might be interested in knowing the amount of debt currently on the organization’s books, the amount of cash on hand, and the amount of profit the organization takes in order to contemplate regulatory decisions. A government

Reflective Account On Role As A Student In Higher Education And As A Future Health Practitioner

1706 words - 7 pages challenging mission. Not only have I gained valuable academic knowledge, but I have also learnt communication skills and how to apply them for the best outcomes in group settings. In fact, I already understand that hard work and optimism (qualities that did me well in my eleven years as a health care assistant in nursing homes for the elderly) even in the face of seemingly unsurmountable odds are the essential ingredients for academic success. As such, I

Ratio And Financial Ratio Analyisis

1753 words - 8 pages Ratio and Financial Statements Analysis Kimberly Y. Gruber University of Maryland University College Dr. Sunando Sengupta 07/25/2013 Turnitin Score: 23% Executive Summary The purpose of this paper is to examine ratio and financial statement analysis. Such analysis is a useful tool for managers and stakeholders to evaluate a company’s financial health in order to identify opportunities for growth and areas of weakness so as to

Users of Financial Info

545 words - 3 pages worthiness of a business and ascertain whether to supply goods on credit. Suppliers Suppliers need to know if they will be repaid. Terms of credit are set according to the assessment of their customers' financial health. Customers use Financial Statements to assess whether a supplier has the resources to ensure the steady supply of goods in the future. This is especially vital where a customer is dependant on a supplier for a specialized

Generally Accepted Accounting Principles

1134 words - 5 pages should not be changed annually rather remain the same. Consistency eliminates confusion and allows for easy understanding of the company’s financial performance from time to time. This concept affects health care because hospitals have to show their financial reports and are compared from previous years to assess for improvements and prevent any future financial mistakes. The reports should have a constant accounting method used for review

Finance Statements

896 words - 4 pages 401K or to anticipate revenue from company profit sharing. Investors will use it to decide or not invest in a company, assessing the past performance and speculate what future revenue may be. Financial institutions will decide or not lend money to the company. Creditors may use for the same reason, which is loan additional money or collect on a past debt. Shareholders will use to decide or not to acquire or sell shares, the current and future value

Financial Accounting and Reporting

4167 words - 17 pages March 2015 Needs Statements Owners Financial statements are a need for owners to make the decisions. Also it helps them to determine whether the business is moving in a right direction and to see the financial position of the business. Employees Employees use Financial Statements for assessing the company's profitability and its consequence on their future remuneration and job security. Competitors Compare their

Engagement Letter

732 words - 3 pages during the current engagement and pertaining to the latest period presented are immaterial, both individually and in the aggregate, to the financial statements taken as a while. Our responsibility is to express an opinion on these financial statements and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audits. If, for any reason, we are unable to complete the audit or are unable to form or

Sarbanes-Oxley: Benefits vs. Costs

1519 words - 7 pages financial statements were thorough and complete. Accurate financial reports provide stockholders and potential investors with a clear picture of a company’s health and future prospects. Requiring the lead audit partner and reviewing partner to rotate off the audit every five years reduces the potential for audit fraud. Additionally, rotating principal audit personnel regularly helps to reduce the risk of error. If the same individuals are

Financial Statements Overview

1026 words - 5 pages example below illustrates the data shown on an income statement (Kimmel, Weygandt & Kieso, 2010). [pic] Balance Sheet The balance sheet is a detailed snapshot that reports a company’s financial health at a specific point in time (as noted in the header of the balance sheet). The details within the balance sheet are the assets (cash, accounts receivable, owned equipment, and prepaid insurance) and the liabilities and stockholders’ equity

Cwt Limited Financial Statement Analysis

3307 words - 14 pages activities. The cash flow statement is derived from the balance sheet and income statement. It can be used to predict future cash flow for budgeting purpose. The investors will view it as an indicator of a company’s financial health. Page 7 of 36 6. Critical Analysis of CWT Limited’s Financial Statements 6.1 Liquidity Ratios 6.1.1 – Current Ratio The current ratio measures a company’s ability to pay off its short-term obligations such as

Related Essays

Managerial Accounting Scitronics: Assessing A Company’s Future Financial Health

2183 words - 9 pages 1. Introduction This report seeks to understand and assess SciTronics, a medical device company, future financial health. It is critical to assess the long-health of a company as it assists the management in formulating strategies and goals. Consequently, external parties such as banks, suppliers and investors also rely on financial health assessments to grant credits, engage in long-term supplier contracts or an investment in the company’s

Assessing The Company's Future Financial Health

5458 words - 22 pages 9 -9 1 1 -4 1 2 REV: MAY 28, 2012 Assessing a Company’s Future Financial Health Assessing the long-term financial health of a company is an important task for management as it formulates goals and strategies and for outsiders as they consider the extension of credit, long-term supplier agreements, or an investment in a company’s equity. History abounds with examples of companies that embarked on overly ambitious programs and subsequently

Women’s Health – Assessing The Need For A Targeted And Specialized Approac

840 words - 4 pages different issues and challenges facing companies when developing therapies for Women’s Health conditions and how these can most effectively be addressed to ensure future success” http://www.gosreports.com/womens-health-assessing-the-need-for-a-targeted-and-specialized-approach/ Joanna | Executive - International Business and partner Relations Gos International Inc. E-mail: info@gosreports.com | Web: www.gosreports.com

The Inner World Of A Future Mental Health Counselor

2870 words - 12 pages 1 The Inner World of a Future Mental Health Counselor 2 Welcome, you are about to embark on a journey into my inner world. Along the way, you will discover the following: (1) what in my background helps me to think through and identify what is right and wrong, as well as what