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Assessing a Company Future Financial Health

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Assessing a Company’s Future Financial Health

In this case the concentration is on “Company Performance Measurement”, using the “Ratios”, ‎before we answer to the question, we have to focus a bit on the “Financial Ratios”‎ Sales Growth: The increase in sales over a specific period of time, often calculated ‎annually.‎
In this specific Case, that has asked the Sale growth for the four-year period, can be calculated ‎as bellow;‎
‎ ((Ending Value)/(Beginning Value) )^((1/(# of Year)) )-1 ‎
‎= ($244,000/$115,000) = (1+r) ^4 compound rate, = 21%‎ Profitability Ratios: it shows how profitable the Company is;‎
Profits as a percentage of sales in 2008;‎
Income/Sale = 14000/244000=0.0573*100=5.73%‎
Profits as a percentage of sales in 2005;‎
Income/(Sale )= 5000/147000‎‏ = ‏‎0.0340 *100 =3.4%‎
This shows an increase of 2.3% from the beginning (2005).‎
‎ 3. SciTronics had a total of $112, 000 (75,000+20,000+7,000+10,000) of capital at year-end 2008 and ‎earned before interest but after taxes (EBIAT) 16,000 (26,000-10,000) during 2008. Its return on capital ‎was 14.29% (16,000/112,000) which represents an increase from the 8.11% (6,000/74,000) in 2005.‎

‎ 4. SciTronics had $75,000 of owner’s equity and earned $14,000 after taxes in 2008. Its return on ‎equity was 18.66% ($75,000/$14,000) an improvement from the 8.1% ($5,000/$61,000) earned in 2005.‎

Activity Ratios
‎ 1. Total Assets turnover for SciTronics in 2008 can be calculated by dividing $244,000 (net sales) into ‎‎$159,000 (total assets). The‎ turnover decreased from 1.58 times in 2005 to 1.53 in 2008.‎

‎ 2. SciTronics had $66,000 in accounts receivables at year end 2008. Its average sales per day were ‎‎$668.49 ($244,000/365) during 2008 and its average collection period was 98.73 ($66,000/668.49). This ‎represents an improvement from the average collection period of104.29

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