Analysis of Sensient Technologies Corporation Financial Performance

The financial health of the company refers to the effective performance of the business in terms of managing cash flow operations. Based on the Sensient Technologies Corporation financial statements, that is, balance sheet, income statement, and statement of cash flow, the financial status can be generalized to identify necessary concerns to be improved. Financial statement accounts give deep insight into the firm’s overall performance in the market.

According to the return on assets, the company has an average ratio of 5.78%. This means that the business organization is good at using the available company resources and assets to make a profit for the business (Krylov). The entity’s efficiency in converting assets into profit is good even though the rate is slightly below the required percentage to enable maximum profit generation for the firm. According to the ROA, the business’s financial health is stable.

On the side of return on equity (ROE), the company has an average ratio of 13.32%. According to the ROE, the business organization is properly managing the shareholder’s equity to generate income. The firm’s management team is effectively and efficiently utilizing investors’ funds, putting them into the suitable investment that, in return, yields profit for both the business and investors. The good management of equity shows that the business organization has good financial performance in the market.

An area of concern is the inventory turnover ratio; the company has 2.1 times the rate at which the stock is being sold. This low rate may signify that the company’s sales team is ineffective in generating more sales; therefore, the business management should ensure they invest more in sales and marketing. The low turnover may also indicate that the goods the company is offering are not good for consumers, or it can means that the corporation has overstock products. This might result in low income from sales, thus reducing the company’s revenue.

The company also has a debt-to-equity ratio of 0.70, indicating that the firm uses more debt to finance its business operations. Low debt-to-equity allows the company to enjoy more profits since it will use less income to pay back the interests for the debts and to finance the loans. Having such high debt-to-equity ownership puts the organization at risk of operations as its ability to borrow will be limited.

Therefore, the business organization should focus on using equity to finance its operations. The firm should lower its share price to attract investors to raise more equity that it can use to invest. By increasing the common share issued into the market, the equity value will increase, and hence most of the operations will be through equity. By financing its business activities by shareholders’ equity, the company’s debt-to-equity ratio will fall below the current 0.70, which will indicate good financial health for the business organization.

Senseint Technologies Corporation wants to improve its sales in the market. Through the research and development department, the management has decided to produce a new product that will enable the firm to attain a good sales level in the market. The team chooses to produce Artificial Food Flavor products in the market. The cost required to undertake the whole project is estimated to be $256 million that is including direct and indirect costs. By engaging in the project, the firm’s sales revenue will increase by 30 percent annually.

The project will allow the firm to increase the inventory turnover to 5 times since the product will complement the company’s product, therefore, attracting customers, thus, increasing sales. The project is estimated to increase the company’s return which will result to gain. Considering the approximated income from the new product, the project is viable and worth undertaking.

To finance the project, the corporation should consider leasing. Through finance leasing, the company will be able to preserve its capital. Through capital preservation, the business organization will be able to use its available resources to invest in other areas that will equally generate income for the company. This will give the business organization an opportunity to increase its operations in the market for better revenue generation.

Leasing will allow the corporation to have increased purchasing power compared to when it uses loans. When the organization is acquiring any equipment, and it tends to use a loan, in the process of processing the loan, the firm will be required to produce equity that would act as security in the transaction process. This will lower the number of resources the business has to invest in other areas.

Similarly, through leasing, the business management is capable of planning accordingly on the periodic payment according to the firm’s cash flow expectations. This will allow the company to avoid dealing with payment issues when the business cash flow has reduced (Alkhazaleh and Ayman 8). Furthermore, the payment is based on fixed rates throughout the agreed period; hence the company will not face ever-changing interest rates that can influence its financial operations.

Another important reason for financing the company project through leasing is to enhance financial efficiency. Once the new product has been launched into the market, the revenue which the firm generates from its sales can then be channeled into repaying the lease payments acquired during the product development. In this case, the project expenses are matched or transferred to the income derived from the development.

Based on the company’s financial health, the business organization can continue with the project immediately. The corporation management team is capable of effectively managing the business operations; therefore, it can handle the development to ensure the firm maximizes gains from it. Having a good record of financial performance, the industry will be able to accumulate the required cash from the business operations to repay lease payments. The organization will be able to complete repayment without using any of its resources; therefore, it would grow and expand its operations in the market. Proper financial management and effective utilization of the available resources make the company have good financial health.

Works Cited

Alkhazaleh, Ayman Mansour Khalaf, and Mohammad Al-Dairy. “To What Extent Does Financial Leasing Has Impact on the Financial Performance of Islamic Banks: A Case Study of Jordan.” Academy of Accounting and Financial Studies Journal, vol. 22, no.1, 2018, pp.1-14.

Krylov, Sergey. “Target Financial Forecasting as an Instrument to Improve Company Financial Health“. Cogent Business & Management, vol. 5, no. 1, 2018, pp. 1-42. Web.

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