Assessing a Company’s Financial Future

Assessing a Companys Future pecuniary Health Case Analysis Executive Summary A starchys ability to analyze its long-term m bingletary health tail assembly 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 monetary systems before a negative result occurs within its financials. As the HBR oddb all told describes, Management mustiness 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 organization but also in everyones personal life. There allow for ever so 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 funding? No, high growth of a immobile does not always require external funding. The need for a steadfastly to rely on external financing d epends 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 conglomeration 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 enlarge in accrued expenses. On the other hand, in a different industry where the level of kernel assets is quite large, this gap nett 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. 9% 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 geographical geographical cubic centimeteree/$244 cc) 2. This represented an increase from 3. 40% in 2005. (Return on Sales = $5 stat mi/ $147 mil) 3. SciTronics had a thoroughgoing of $111 mil of capital at closing 2008 and get, before interest but after taxes (EBIAT), $15. 158 mil in 2008. Its return on capital was 13. 66% in 2008, which represented an increase from the 7. 72% bring in in 2005. 4. SciTronics had $75 mil of owners justice and earned $14 mil after taxes in 2008.Its return on equity was 18. 67%, which represented an improvement from the 8. 20% earned in 2005. (ROE2008 = 14 mil/75 mil and ROE2005 =5 mil/61 mil) Activity Ratios 1. Total asset turnover for SciTronics in 2008 can be calculated by dividing $159 mil into $244 mil. The turnover deteriorated from 1. 58 propagation in 2005 to 1. 53 times in 2008. 2. SciTronics had $66 mil invested in accounts receivable at closing 2008. Its clean sales per day were $668,493. 15 during 2008 and its average collection period was 98. 73 days. This represented an improvement from the average collection period of 104. 9 days in 2005. 3. SciTronics apparently unavoidable $29 mil of instrument at year-end 2008 to support its operations during 2008. Its activity during 2008 as measured by the cost of goods sold was $74 mil. It therefor had an inventory turnover of 2. 55 times. This represented an improvement from 2. 05 times in 2005. (Inv. Turnover2008 = 74 mil/29 mil and Inv. Turnover2005 = 43 mil/21 mil) 4. SciTronics had net fixed assets of $18 mil and sales of $244 mil in 2008. Its fixed asset turnover ratio in 2008 was 13. 56 times, a deterioration from 16. 33 times in 2005. (FA Turnover2008 = 244 mil/18 mil and FATurnover2005 = 147 mil/9 mil) Leverage Ratios 1. SciTronics ratio of total assets split up by owners equity increased from 1. 52 at year-end 2005 to 2. 12 at year-end 2008. 2. At year-end 2008, SciTronics total liabilities were 52. 83% of its total assets, which compares with 34. 41% in 2005. 3. The market value of SciTronics equity was $175,000,000 at December 31, 2008. The total debt ratio at market was 32. 43%. (TD market = 84 mil/259 mil) 4. SciTronics earnings before interest and taxes (operating income) were $24 mil in 2008 and its interest charges were $2 mil. Its times interest earned was 12 times.This represented an improvement from the 2005 level of 9 times. 5. SciTronics owed its suppliers $6 mil at year-end 2008. This represented 8. 11% of cost of goods sold and was a mitigate from 11. 63% at year-end 2005. The company appears to be more(prenominal) prompt in paying its suppliers in 2008 than it was in 2005. 6. The financial hazard of SciTronics diminish between 2005 and 2008. Liquidity Ratios 1. SciTronics held $133 mil of current assets at year-end 2008 and owed $48 mil to creditors, due to be paid within one year. SciTronics current ratio was 2. 77, an decrease from the ratio of 3. 90 at year-end 2005. . The quick ratio for SciTronics at year end 2008 was 2. 17, and in crease/decrease from the ratio of 2. 90 at year-end 2005. (Quick2008 = (133 mil-29 mil)/48 mil and Quick2005 = (82 mil-21 mil)/21 mil) Profitability Revisited 1. The improvement in SciTronics return on equity from 8. 2% in 2005 to 18. 7% in 2008 resulted from an increase (RoS2008 = 14 mil/244 mil and RoS2005 = 5 mil/147 mil) in its return on sales and from an decrease (ATO2008=244 mil/159 mil and ATO2005=147 mil/93 mil) in its asset turnover, and an decrease (Lev2008=159 mil/75 mil and Lev2005=147 mil/61 mil) in its financial leverage. . Assign the five unidentified industries to A, B, C, D, and E on Exhibit 3. A Electric Utility low inventory, large fixed assets B tax deduction General Merchandise Retailer large fixed assets C Japanese automobile manufacturer large fixed assets, longest inventory turnover time D Automated Test Equipment low inventory, high accounts collectible E Upscale Apparel Retailer small margin of profitability, medium-sized inventory