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?
