Managerial Accounting - Scitronics: Assessing a Company’s Future Financial Health

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 equity. The report will assess future profitability, financial strength and competitive performance by analyzing its past trends and patterns for the period of 2005 – 2008. The primary sources of financial data will be its income statement, the balance sheet and statement of cash flows. Factors such as sales growth, profitability, leverage and liquidity.

2. Sales Growth

Sales growth is an important indicator of a company's health and ability to sustain its business. It also provides indication of whether the company’s strategy and product development activities are effective. However, sales growth may not be indicative of a company's actual productivity and thus other metrics are required in the assessment.

Sales Growth SciTronic

$300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $0 $244,000 $205,000 $147,000 $171,000

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Year 2005

Year 2006 YEAR

Year 2007

Year 2008

Sales Growth SciTronic

Figure 1 Sales Growth SciTronic Page | 3

From Figure 1, it was observed that SciTronic’s sales have increased by 16 to 19 percent yearly since 2005. This indicates strong demand for its products. During the four-year period ended December 31 2008, SciTronics sales had grew at a compounded rate of 20.7 percent, with no acquisitions or divestitures.

3. How Profitable is SciTronics?

Companies, managers and owners alike are most concerned with profitability. The use of profitability ratios are one of the most frequently used tools to determine the company’s bottom line and its return to investors. It shows the...