Candela Corporation ("Candela" or the "Company") is a pioneer in the development and commercialization of advanced aesthetic laser and light based systems that allow physicians and personal care practitioners to treat a wide variety of cosmetic and medical conditions including:

• Permanent hair reduction on all skin types;

• Skin rejuvenation, skin tightening and wrinkle reduction;

• Vascular lesions such as rosacea, facial spider veins, leg veins, port wine stains, angiomas and hemangiomas;

• All-color tattoo removal; skin resurfacing scars, stretch marks and warts;

• Removal of benign pigmented lesions such as sun spots, age spots, freckles, and Nevus of Ota/Ito;

• Acne and acne scars;

• Sebaceous hyperplasia;

• Beard bumps (PFB);

• Psoriasis; and,

• Other cosmetic skin treatments.

The growth in the market for using aesthetic laser and light-based products is currently a worldwide phenomenon being driven by an increase in discretionary income of aging baby-boomers, which continues to create new opportunities for Candela. This market demographic places a premium on good health and personal appearance, and has demonstrated a willingness to pay for health and cosmetic products and services. In addition, continuous growth in the popularity of laser and light-based treatments among the general population is also spurring demand for Candela's products. Last year, according to The American Society for Aesthetic Plastic Surgery, Americans spent an estimated $12.2 billion on approximately 11.5 million cosmetic procedures. In particular, lasers and light-based systems are proving an attractive alternative for eliminating unwanted hair. Laser hair removal procedures were the second most frequent cosmetic procedure performed last year, second only to Botox injections. Candela is dedicated to developing safe and effective products. Our aesthetic laser and light-based systems are further distinguished by being among the fastest, smallest and most affordable in their respective markets. We believe that we have the largest market share because of these product attributes and we are committed to continual innovation as we meet the needs of our markets.

Candela was incorporated in Massachusetts on October 22, 1970, and subsequently reincorporated in Delaware on July 1, 1985.*

Required

1. Analyze the firm's financial statements and supplementary information on pages 238-249. Your analysis should include the preparation of common-size financial statements, key financial ratios, and an evaluation of short-term solvency, operating efficiency, capital structure and long-term solvency, profitability, and market measures. (The financial statement analysis template can be accessed and used at www.prenhall.com/fraser.)

2. Using your analysis, list-reasons for and against investment in Candela Corporation's common stock.

3. Using your analysis, list reasons for and against loaning Candela Corporation additional funds.