FINANCIAL ANALYSIS Essay Example

15 FINANCIAL ANALYSIS

Financial Analysis

Lecturer:

Executive summary

. Sonic Healthcare Limited 2009 financial ratios are analyzed as follows:asset efficiency, liquidity, and capital structure and market performance. These ratios include profitability ratios, (Kendrick, 2006)Financial ratios are the fiscal indicators describing the company financial performance and their state of affairs. They are majorly used by potential investors and users of financial statements in evaluating the company’s financial performances

Table of Contents

1Executive summary

2Table of Contents

3Introduction

3Profitability ratios

3Return on assets

4Return on equity

4Operating expense ratio

5Efficiency ratios

5Asset turnover ratio

6Days debtors turnover

6Liquidity ratios

7Current ratio

7Cash flow ratio

8Capital Structure ratio

8Equity ratio

9Debt ratio

9Conclusion

11Reference List

12Appendix one

13Appendix two

14Appendix three

Introduction

Sonic Healthcare Limited (SHL) is an international medical diagnostics company which offers laboratory medicine, pathology and radiology services to the medical commune. The company is critically structured as a decentralised association of the medically diagnostic practices whose headquarters is located in Sydney, Australia. SHL Company provides diagnostic services and infrastructure in eight countries: Australia, New Zealand, United Kingdom, Switzerland Germany, Ireland, Belgium, and USA.

Profitability ratios

the firm’s investment. Profitability ratios involve return on equity, return on investment. ). Profitability ratio assesses the firm’s ability in generating earnings and the cash flows in relative toGerhart, F., 2008ability in generating earnings in comparative to the revenue, assets and equity (Profitability ratios are ratios used to evaluating company’s

Return on assets

Return on assets provides an evaluation on the company’s profits in relation to the average total assets invested. It provides comparison between the company’s earnings generated to the total company’s assets.

= earnings before interest and tax / average total assets x 100Return on assets

Particulars

Average total assets

4,761,246

Return on Assets for the financial year 2009 reveals that the company is more profitable in investing it assets. Return on assets signifies for each dollar of the assets invested, SHL Company earn 5.24.

Return on equity

The potential investors and the shareholders of a company are concerned in the company’s earnings. Return on equity ratio is used determining the profitability of the business in relation to shareholders equity. Return on equity (ROE) ratio evaluates the extent of net profit to the amount of shareholders equity.

Return on equity = net profit / average shareholder’s equity x 100.

Particulars

Net Profit

Average Shareholders’ Equity

2,532,083

From the table above, return on equity in 2009 show’s a8.94% signifying that for every dollar of shareholders investment, SHL Company generate 8.94 cent of the earning.

Operating expense ratio 

). Potential investors use this ratio in determining the viability of expenses incurred by the firm. In case where OER is high then the company is at risk of higher expenses than the income earned.Fabozzi,J. 2006Operating expense ratio (OER) provides the comparisons between the ascertained expenses for analogous properties. This ratio signifies the property’s operating cost and its returns to the company (

OER = Operating Expenses / Revenues

Particulars

Operating expense

2,764,123

Revenues

3,013,731

The information described above shows that the company operating expense ratio is 0.92 in financial year 2009. This indicate that the company’s property return in not sufficient enough in generating revenue however measure to reduce expenditure should be effected my management.

Efficiency ratios

involves; Asset turnover ratio and days debtors turnover. . It incomes. This ratio gives a comparison of the company’s assets and its turnover revenue. Efficiency ratios signify the company’s efficiency in utilizing its total assets to generate revenues(Kendrick, 2006) in generating earnings out of sales the efficiency of the company’sEfficiency ratios determine

Asset turnover ratio

. The company’s going concern is signified by its capability in making profits out of the turnover.)Gerhart, F., 2008(Asset turnover ratio is used in determining the general efficiency of the company in utilizing assets to make profits

Asset Turnover Ratio = 

Net Sales

Average Total Assets

Particulars

Sales Revenue

3,013,731

Average Total Assets

4,761,246

From the table above, SHL Asset turnover ratio indicates that the company is not efficient enough in utilizing its assets to generate income. The 0.63 assets turnover ratio (ATR) defines that for each dollar of the asset invested the company earns 0.63 cents.

Days debtors turnover

Day’s debtors describe the average time scale it takes for a company to collect cash for their trade debtors. The company is considered efficient if its day’s debtor’s turnover is within a short period of time. Efficient cash collections increases cash flows however, increasing the liquidity state of the company.

= average trade debtors / sales revenue x 365
Days debtors turnover

Particulars

Average trade debtors

Sales revenue

3,013,731

SHL Company takes 45days to collect cash from their debtors in financial year 2009. This signifies that the company is efficiency in collection of cash debtor’s.

Liquidity ratios

. The higher the liquidity ratios describe the higher margin of safety that the company has in meeting its current obligations. In case where liquidity ratio is greater than one, the firm is in good financial health. It includes current ratio, cash ratio, and acid test ratio.(Kendrick, 2006)Liquidity ratios are financial ratios signifies the ability company in paying its short term financial obligations through cash

Current ratio

). Commonly, current assets are used in financing short term liabilities of the business firm. Current ratio reveals the dollars of current assets the firm has per dollar of current liabilities.Fabozzi,J. 2006Current ratio is used in evaluating the relationship between current assets and current liabilities/ obligations (

= current assets / current liabilities
Current Ratio

Particulars

Current assets

1,012,304

Current liabilities

Current ratio

From the table above, SHL company reveals a current ratio of 1.2 in financial year 2009, this signifies that the company is in a position to pay its current financial obligation using its current assets.

Cash flow ratio

. Cash and cash items from operating activities it used in financing company’s short-term liabilities. (Kendrick, 2006)Cash flow ratio is used in determining the ability a company’s in meeting its current liabilities using cash and cash items from operating activities

= net cash flows from operating activities / current liabilitiesCash flow ratio

Particulars

Net cash flow from operating activities

Current liabilities

Cash flow ratio

From the table above, the company revealed its state in meeting its current liabilities using cash flow from operating activities to be 0.51 in 2009. This shows that the company is not liquid enough to pay off its short term liabilities using cash from operating activities.

Capital Structure ratio

benchmark on extend to which companies exploit its long term financial obligation. . This ratio indicates the percentage ratio of the debt and firm’s equity. It also act as a )Gerhart, F., 2008(, debt equity ratios debt ratiosCapital structure ratios describes the company’s long term financial strength which is defines by the structural ratios such as

Equity ratio

f equity ratio is less than 50%, the company is showed to be more dependent on debt funding than the equity funding. however i. The accounting equation stipulates that total equity is equal to total assets plus liabilities(Kendrick, 2006)Equity ratio ascertains the amount of dollars of equity in every dollar of assets

Equity ratio = total equity / total assets x 100

Particulars

Total equity

2,532,083

Total assets

4,761,246

Equity ratio

In the financial year 2009 the company reveal it equity ratio to be 53.18 signifying the company is more depended in its equity funding that debt funding. Equity ratio indicates that the company is in well structures since their asset is funded using its equity.

Debt ratio

). In cases where debt ratio is more than 50%, The Company is deemed to fund its assets investment by the debt more that the available equity.Fabozzi,J. 2006Debt ratio is used in determining the amount of liabilities that existing in every dollar of company’s assets (

ratio = total liabilities / total assets x 100Debt

Particulars

Total liabilities

Total assets

4,761,246

Debt ratio

From the table above, SHL Company signifies a debt ratio of 17.66% in financial year 2009. This illustrates that the company is

Conclusion

Sonic Healthcare Limited financial analysis describes the state of its financial performances. The SHL profitability ratio signifies that the firm is profitable. Return on assets indicates that for each dollar of the assets invested, SHL Company earns 5.24, and Return on Equity indicates for every dollar of shareholders investment, SHL Company generate 8.94 cent of its profits. The company’s efficiency ratio signifies that it more efficient in collection of cash in financial year 2009. SHL Company takes 45 day in collection of cash from its debtors. On the other hand asset turnover ratio illustrates that the company is not efficient enough in utilizing it assets to generate cash. Current ration signifies that the company is more liquid to pay it short term obligations using its current assets. While cash flow ration indicates that SHL is inefficient in meeting its obligation using cash from operating activities. Equity ratio indicates the SHL financial strength in meeting its obligation using its equity. The equity ratio of 53.18% revealed that the company capital structure is in a state to finance itself. SHL Company analysis describes that the company in a better position for potential investors to invest.

Reference List

New York, USA: McGraw-Hill.Financial management and analysis.Fabozzi., F.J., 2006.

Gerhart, F., 2006. Introduction to Financial management and Accounting Principles. UNSW Press.

. Hopkins University Press.Improving Company’s Productivity: Fianancial analysisKendrick, J., 2006.

Appendix one

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Appendix two

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Appendix three

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