Assessing a Company's Financial Future
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 strive forward.
Analysis
1. Does high growth always require external financing?
No, high growth of a firm does not always require external financing. The need for a firm to rely on external financing depends on the industry of the firm. As explained in the case, a restaurant does not require external financing to result in high growth. With a low level of total assets found in a restaurant, it will not need financing during a period where it experiences rapid growth because the financial gap will be offset by the increase in accrued expenses. On the other hand, in a different industry where the level of total assets is quite large, this gap can’t be sufficed by an increase on the liabilities side of the balance sheet. This gap can only be bridged by obtaining loans or issuing debt against the firm.
2. Fill in the blanks on pages 6 through 10.
Sales Growth
1. During the four-year period ended December 31, 2008, SciTronics’ sales grew at a 65.99% compound rate. There were no acquisitions or divestitures. Profitability Ratios
1. SciTronics’ profit as a percentage of sales in 2008 was 5.74%. (Return on Sales = Net Income/Net Sales = $14 mil/$244 mil)
2. This represented an increase from 3.40% in 2005.
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 strive forward.
Analysis
1. Does high growth always require external financing?
No, high growth of a firm does not always require external financing. The need for a firm to rely on external financing depends on the industry of the firm. As explained in the case, a restaurant does not require external financing to result in high growth. With a low level of total assets found in a restaurant, it will not need financing during a period where it experiences rapid growth because the financial gap will be offset by the increase in accrued expenses. On the other hand, in a different industry where the level of total assets is quite large, this gap can’t be sufficed by an increase on the liabilities side of the balance sheet. This gap can only be bridged by obtaining loans or issuing debt against the firm.
2. Fill in the blanks on pages 6 through 10.
Sales Growth
1. During the four-year period ended December 31, 2008, SciTronics’ sales grew at a 65.99% compound rate. There were no acquisitions or divestitures. Profitability Ratios
1. SciTronics’ profit as a percentage of sales in 2008 was 5.74%. (Return on Sales = Net Income/Net Sales = $14 mil/$244 mil)
2. This represented an increase from 3.40% in 2005.