Assessing a Company's Financial Future
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 grouped into three types: (1) profitability measures (sales), (2) activity (asset management) measures, and (3) leverage and liquidity measures. (Piper, 1-6)
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1. By assessing the performance of SciTronics during the 2005-2008 periods we see that it’s profitability ratio increased. The company is heading in the right direction. In terms of sales we can see in the below table that the company has increased it’s net income.
Table 1 All in terms of Sales | 2005 | 2006 | 2007 | 2008 | Sales | | 1.486956522 | 1.394557823 | 1.659863946 | Sales in % | | 116.3% | 119.9% | 119.0% | COGS | 29.3% | 29.2% | 30.7% | 30.3% | Gross Margin | | | | | R & D | 10.2% | 11.7% | 12.7% | 11.5% | Sell, General & Admin | 53.7% | 53.8% | 51.7% | 47.5% | Operating Income | 6.8% | 5.3% | 4.9% | 10.7% | Interest Expense | 0.7% | 1.2% | 1.0% | 0.8% | Profit before tax | 6.1% | 4.1% | 3.9% | 9.8% | Income tax | 2.7% | 1.2% | 1.5% | 4.1% | Net Income | 3.4% | 2.9% | 2.4% | 5.7% |
2. SciTronics financial strength and its access to external sources have improved. This is evident from the financial ratios of profitability and leverage.
3.
a. What will management do to maintain current
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 grouped into three types: (1) profitability measures (sales), (2) activity (asset management) measures, and (3) leverage and liquidity measures. (Piper, 1-6)
Page 6: 1-3
1. By assessing the performance of SciTronics during the 2005-2008 periods we see that it’s profitability ratio increased. The company is heading in the right direction. In terms of sales we can see in the below table that the company has increased it’s net income.
Table 1 All in terms of Sales | 2005 | 2006 | 2007 | 2008 | Sales | | 1.486956522 | 1.394557823 | 1.659863946 | Sales in % | | 116.3% | 119.9% | 119.0% | COGS | 29.3% | 29.2% | 30.7% | 30.3% | Gross Margin | | | | | R & D | 10.2% | 11.7% | 12.7% | 11.5% | Sell, General & Admin | 53.7% | 53.8% | 51.7% | 47.5% | Operating Income | 6.8% | 5.3% | 4.9% | 10.7% | Interest Expense | 0.7% | 1.2% | 1.0% | 0.8% | Profit before tax | 6.1% | 4.1% | 3.9% | 9.8% | Income tax | 2.7% | 1.2% | 1.5% | 4.1% | Net Income | 3.4% | 2.9% | 2.4% | 5.7% |
2. SciTronics financial strength and its access to external sources have improved. This is evident from the financial ratios of profitability and leverage.
3.
a. What will management do to maintain current
Cited: Piper, Thomas. Assessing a Company 's Future Financial Health. 911th ed. Vol. 9. Boston, MA.: Harvard Business Review, 2012. Print. Ser. 412.