this is everything i was provided with
1. SciTronics' ratio of total assets divided by owners' equity increased/decreased from at year-end 2005 to __at year-end 2008. The same "story" of increasing financial leverage is told by dividing total liabilities by total assets. 2. At year-end 2008, SciTronics' total liabilities were _% of its total assets, which compares with _% in 2005 Lenders- especially long-term lenders -- want reasonable assurance that the company will be able to repay the loan in the future. They are concerned with the relationship between a company's debt and its total economic value. This ratio is called the total debt ratio at market. Total liabilities Total liabilities + market value of the equity The market value of the equity is calculated by multiplying the number of shares of common stock outstanding times the market price per share. 3. The market value of SciTronies' equity was $175,000,000 at December 31, 2008. The total debt ratio at market was A fourth ratio that relates the level of debt to economic value and performance is the times interest earned ratio. This ratio relates earnings before interest and taxes a measure of profitability and of long-term viability to the interest expense -a measure of the level of debt. Earnings before interest and taxes Interest expense 4. SciTronics' earnings before interest and taxes (operating income) were $ 2008 and its interest charges were $_Its times interest earned was times. This represented an improvement/deterioration from the 2005 level of times. A fifth and final leverage ratio is the number of days of payables. This ratio measures the average number of days that the company is taking to pay its suppliers of raw materials and components. It is calculated by dividing annual purchases by 365 days to determine average purchases per day: Annual purchases 365 days Accounts payable are then divided by average purchases per day: Accounts payable Average purchases per day to determine the number of days of purchases that are still unpaid. It is often difficult to determine the purchases of a firm. Instead, the income statement shows the cost of goods sold, a figure that includes not only raw materials but also labor and overhead. Thus, one can often gain only a rough idea as to whether a firm is becoming more or less dependent on its suppliers for finance. This can be done by tracking the pattern over time of accounts payable as a percent of cost of goods sold. Leverage Ratios: How Soundly Is the Company Financed? The leverage ratio is the third basic type of financial ratio. There are a number of balance sheet measures of financial leverage. The various leverage ratios measure the relationship of funds supplied by creditors to the funds supplied by owners. The use of borrowed funds by reasonably profitable companies will improve the return on equity. However, it increases the riskiness of the business and the riskiness of the returns to the stockholders, and can result in financial distress if used in excessive amounts. The ratio of total assets divided by owners' equity is an indirect measure of leverage. A ratio, for example, of $6 of assets for each $1 of owner's equity indicates that $6 of assets is financed by $1 of owners' equity and $5 of liabilities. Financial Ratios and Financial Analysis The three primary sources of financial data for a business are its income statement, the balance sheet, and statement of cash flows. The income statement summarizes revenues and expenses over a period of time. The balance sheet shows what a company owns (its assets), what it owes (its liabilities), and what has been invested by the owners (owners' equity) at a specific point in time. The statement of cash flow categorizes all cash transactions during a specific period in terms of cash flows generated or used for operating activities, investing activities, and financing activities. The focus of this section is on performance measures based on the income statements and balance sheets of SciTronics-a medical device company. The measures can be grouped by type: (1) profitability measures, (2) activity (asset management) measures, and (3) leverage and liquidity measures. Please refer to the financial statements of SciTronics as shown in Exhibits 1 and 2. As you work through the questions in this section, please also consider three broad questions: 1. What is your assessment of the performance of SciTronics during the 2005-2008 period? 2. Has its financial strength and its access to external sources of finance improved or weakened? 3. What are the 2-3 most important questions you would ask management as the result of your analysis? Sales Growth Sales growth is an important driver of the need to invest in various types of assets and of the company's value Sales growth also provides some indication of the effectiveness of a firm's strategy and product development activities, and of customer acceptance of a firm's products and services. Use the following questions to guide your analysis. 1. During the four-year period ended December 31, 2008, SciTronics' sales grew at a compound rate. There were no acquisition or divestitures. Profitability Ratio: How Profitable Is the Company? Profitability is a necessity over the long-run. It strongly influences (1) the company's access to debt; (2) the valuation of the company's common stock; (3) the willingness of management to issue stock; and (4) the capacity to self-finance. One measure of a company's profitability is its return on sales, measured by dividing net income by net sales. 1. SciTronics' profit as a percentage of sales in 2008 was 2. This represented an increase/decrease from _% in 2005 Management and investors often are more interested in the return earned on the funds invested than in the level of profits as a percentage of sales. Companies operating in businesses requiring very little investment in assets often have low profit margins but earn very attractive returns on invested funds. Conversely, there are numerous examples of companies in very capital-intensive businesses that earn miserably low returns on invested funds, despite seemingly attractive profit margins. Therefore, it is useful to examine the return earned on the funds provided by the shareholders and by the "investors" in the company's interest-bearing debt. To increase the comparability across companies, it is useful to use EBIAT (earnings before interest but after taxes) as the measure of return. 6 1. SciTronics' ratio of total assets divided by owners' equity increased/decreased from at year-end 2005 to __at year-end 2008. The same "story" of increasing financial leverage is told by dividing total liabilities by total assets. 2. At year-end 2008, SciTronics' total liabilities were _% of its total assets, which compares with _% in 2005 Lenders- especially long-term lenders -- want reasonable assurance that the company will be able to repay the loan in the future. They are concerned with the relationship between a company's debt and its total economic value. This ratio is called the total debt ratio at market. Total liabilities Total liabilities + market value of the equity The market value of the equity is calculated by multiplying the number of shares of common stock outstanding times the market price per share. 3. The market value of SciTronies' equity was $175,000,000 at December 31, 2008. The total debt ratio at market was A fourth ratio that relates the level of debt to economic value and performance is the times interest earned ratio. This ratio relates earnings before interest and taxes a measure of profitability and of long-term viability to the interest expense -a measure of the level of debt. Earnings before interest and taxes Interest expense 4. SciTronics' earnings before interest and taxes (operating income) were $ 2008 and its interest charges were $_Its times interest earned was times. This represented an improvement/deterioration from the 2005 level of times. A fifth and final leverage ratio is the number of days of payables. This ratio measures the average number of days that the company is taking to pay its suppliers of raw materials and components. It is calculated by dividing annual purchases by 365 days to determine average purchases per day: Annual purchases 365 days Accounts payable are then divided by average purchases per day: Accounts payable Average purchases per day to determine the number of days of purchases that are still unpaid. It is often difficult to determine the purchases of a firm. Instead, the income statement shows the cost of goods sold, a figure that includes not only raw materials but also labor and overhead. Thus, one can often gain only a rough idea as to whether a firm is becoming more or less dependent on its suppliers for finance. This can be done by tracking the pattern over time of accounts payable as a percent of cost of goods sold. Leverage Ratios: How Soundly Is the Company Financed? The leverage ratio is the third basic type of financial ratio. There are a number of balance sheet measures of financial leverage. The various leverage ratios measure the relationship of funds supplied by creditors to the funds supplied by owners. The use of borrowed funds by reasonably profitable companies will improve the return on equity. However, it increases the riskiness of the business and the riskiness of the returns to the stockholders, and can result in financial distress if used in excessive amounts. The ratio of total assets divided by owners' equity is an indirect measure of leverage. A ratio, for example, of $6 of assets for each $1 of owner's equity indicates that $6 of assets is financed by $1 of owners' equity and $5 of liabilities. Financial Ratios and Financial Analysis The three primary sources of financial data for a business are its income statement, the balance sheet, and statement of cash flows. The income statement summarizes revenues and expenses over a period of time. The balance sheet shows what a company owns (its assets), what it owes (its liabilities), and what has been invested by the owners (owners' equity) at a specific point in time. The statement of cash flow categorizes all cash transactions during a specific period in terms of cash flows generated or used for operating activities, investing activities, and financing activities. The focus of this section is on performance measures based on the income statements and balance sheets of SciTronics-a medical device company. The measures can be grouped by type: (1) profitability measures, (2) activity (asset management) measures, and (3) leverage and liquidity measures. Please refer to the financial statements of SciTronics as shown in Exhibits 1 and 2. As you work through the questions in this section, please also consider three broad questions: 1. What is your assessment of the performance of SciTronics during the 2005-2008 period? 2. Has its financial strength and its access to external sources of finance improved or weakened? 3. What are the 2-3 most important questions you would ask management as the result of your analysis? Sales Growth Sales growth is an important driver of the need to invest in various types of assets and of the company's value Sales growth also provides some indication of the effectiveness of a firm's strategy and product development activities, and of customer acceptance of a firm's products and services. Use the following questions to guide your analysis. 1. During the four-year period ended December 31, 2008, SciTronics' sales grew at a compound rate. There were no acquisition or divestitures. Profitability Ratio: How Profitable Is the Company? Profitability is a necessity over the long-run. It strongly influences (1) the company's access to debt; (2) the valuation of the company's common stock; (3) the willingness of management to issue stock; and (4) the capacity to self-finance. One measure of a company's profitability is its return on sales, measured by dividing net income by net sales. 1. SciTronics' profit as a percentage of sales in 2008 was 2. This represented an increase/decrease from _% in 2005 Management and investors often are more interested in the return earned on the funds invested than in the level of profits as a percentage of sales. Companies operating in businesses requiring very little investment in assets often have low profit margins but earn very attractive returns on invested funds. Conversely, there are numerous examples of companies in very capital-intensive businesses that earn miserably low returns on invested funds, despite seemingly attractive profit margins. Therefore, it is useful to examine the return earned on the funds provided by the shareholders and by the "investors" in the company's interest-bearing debt. To increase the comparability across companies, it is useful to use EBIAT (earnings before interest but after taxes) as the measure of return. 6
