Financial Analysis of Abiomed Incorporation Research Paper

Financial Analysis of Abiomed Incorporation - Research Paper Example The potential for growth mainly lies with such companies as once these companies start coming back to profitable tracks they provide good returns especially to those investors who put their investment at stake in the bad times of those companies. However, the risk of losing money also exists such that there are chances that these companies may perform even more sluggish operations which in turn lead them towards the way to bankruptcy. Company Overview Among those companies which are going through their struggling phase of life, Abiomed Inc. is one of those companies. The company mainly develops surgical products especially for heart failing patients and provides those equipments to hospitals. This report provides a financial analysis of Abiomed Inc. for the past three years, as well as with its industry giant Medtronic Inc. This financial analysis is conducted with the help of ratio analysis in respect four broader categories which are 1) Profitability, 2) Efficiency, 3) Liquidity, a nd 4) Solvency. Competitive Environment and Market Conditions The competitive environment for medical and surgical equipments is quite intense especially for the equipments, which facilitate heart failing patients. The financial position of Abiomed Inc. is not as stable and strong as its competitors possess. The competitors can provide better equipments as they have latest technology and better infrastructure as compared to Abiomed Inc. These competitors have a tendency to give tough time to Abiomed Inc. in such a manner that they can provide those surgical equipments either at the same or even relatively lower prices to the customers. As a result, Abiomed Inc. needs to put more focus on building their financial position stronger in order to compete on better footings. Profitability Ratios Return on Stockholder’s Equity Return on shareholder’s equity describes as how much percentage of equity is being generated as net income. Due to experiencing negative earnings i.e. losses ABMD’s return on equity remained in negative zone for all of the three years. However, the most promising sign for the company is that the company is moving in a right direction such that its percentage has been improved from -27% to around -11% which is a positive sign. By taking a look at the performance for Medtronic, its percentage has also been increased from 15% to 19% which is a better sign. Overall it can be inferred that both the companies improved their return on shareholders’ equity mainly due to increasingly improved industry conditions. This ratio is quite meaningful and important to investors especially as they are more concerned in assessing as to how much their equity has earned in the form of income for the company. Return on Shareholder's Equity Year ABMD Medtronic 2011 -11.22% 19.39% Â   Â   2010 -17.62% 21.18% Â   Â   2009 -27.24% 15.70% Return on Assets Return on assets is also a good profitability indicator such that it describes the ef ficiency of assets to generate income for the company. Companies are more interested in knowing as to whether the assets they have deployed in the operations of the business are worthy and capable of generating income or not. If the performance of the assets of ABMD is taken into