Financial Analysis of Steris Corporation

Read the financial analysis of Steris Corporation including risk analysis, beta analysis, analyst opinion, optimum capital structure and conclusion. The document also includes the subject, course code, course name and college/university name.

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Table of Contents
STERIS Corporation........................................................................................................................2
Introduction..................................................................................................................................2
Risk Analysis...............................................................................................................................2
Beta Analysis...............................................................................................................................3
Analyst Opinion...........................................................................................................................4
Optimum Capital Structure..........................................................................................................6
Conclusion...................................................................................................................................7
References........................................................................................................................................8

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STERIS Corporation
Introduction
Steris Plc is a leading provider in health products and services providing infection
prevention and other various procedural products. The company was found in the year 1985 and
offers a variety of mix of innovative capital equipment products, which includes surgical tables,
sterilizers, equipment management solutions and various other connectivity solutions. The
company also offers various consumables health products. The company is listed in the
NASDAQ Stock Exchange with its ticker symbol as “STE” and the current share price of the
company is around $120.03.
Risk Analysis
Business Risk and Financial Risk are the two common risks that are associated with a
company. The business risk associated with the Steris Plc. Company is in the form of rising
operational cost and falling operating margins could be the key example. The financial
performance of the company on the overall basis in the current year 2018 has been
comparatively better than the year 2017. However, Macro-Economic Risks, Legal Changes and
Technological Changes are the key risks that can indirectly influence the operations of the
company (Williams & Dobelman, 2017). On the one hand rising global demand for the health
care industry due to growing population and greater prevalence of chronic disease has been the
key reason for growing demand in health care industry in US. The rise in the level of interest
rates, level of inflation and changing macro-economic policies are some of the key factors that
needs to be taken into consideration. The changing health related regulatory changes are some of
the legal risks faced by the company. Companies operating in the health industry faces a

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common form of risk which is technological advancement and medical research and
development (Li et al. 2014). While risk is involved in the company in the form of development
and researching of various products and services in the case of unsuccessful implementation or
application. Research and development cost involved in the same is the key factor that needs to
be taken into consideration for the purpose of analysis.
In the context of health industry and when the risk approach is viewed from Steris
Incorporation Company industry and business common risk in the form of technological
changes, macro-economic risks and legal risks are some of the common aspects discussed above
are the key factors (Luo et al. 2015).
Beta Analysis
The beta of a company shows the rate of change for a stock in contrast to the movement
in returns for market. Measurement of the stock’s volatility in relation to the market can be done
with the help of beta. In general the value of a beta or the market beta is around 1 and the
individual stocks are ranked accordingly in relation to how much the stock deviates from the
market. The beta of the Steric Plc. Company was around 1.07 times which show that the stock is
closely related to the performance of the stock index.

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Figure 1: Financial Analysis of Steris Plc.
(Source: Research and Analysis for - MSN Money, 2019)
The beta of the company is comparatively low and this can also be regarded to the nature
of the stock in which the industry is based. The health industry is a defensive in nature where
high volatility in compare or correlation with the market or economy is comparatively less.
Analyst Opinion
The opinion of the analyst were done based on the financial position & performance of the
company. The analysis of the company was based on the financial performance of the company
where the STERIS Company has done extremely well from the last year and reported a high
growth in the net income of the company. The profitability of the company was well in line with
the industry standards and the debt exposure in the company was also less as comparatively to
the industry average. The long term debt to equity ratio for the company was around 0.40 times,
which states that the financial risk of the company was not high. The financial risk exposure for
the company was not at a high stage as after analysing the liquidity position of the company it
was seen that the company has also maintained significant amount of current asset in contrast to
the current liabilities of the company so that the company can pay off the current obligations of
the company (US and Global Health Care Industry Outlook, 2019).
The revenue base of the company is expected to increase with the operations and the
services of the company to be increasing the industry. However, the company at the same time
undergoes with the risk of rising operational cost and technological changes undergoing
continuously in the health industry. Continuous Research and Development in the field of
medical and health care marks the success of an organisation along with the inherent risk

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associated from the company in the form of investments done on the same. Thus, after analysing
the global conditions and the macro-economic environment various opinion in regard to the
company has been “Outperform” or “Buy” showing that the financial performance of the
company is expected to improve.
Figure 2: Analyst Opinion for Steris Plc.
(Source: Steris Plc Financial Analysis 2019)

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Figure 3: Analyst Opinion
(Source: Research and Analysis for - MSN Money, 2019)
Optimum Capital Structure
An Optimum capital structure is important so that the company is able to select the
correct capital source for financing the operations of the company. The company is currently
having a debt to equity ratio of 0.41 times which shows that around 41% of the total capital
structure is financed is with debt sources. However, it is crucial for the company to identify the
financial risk associated with the company as an optimum amount of debt is an important factor
that needs to be taken into consideration for the purpose of analysis (STE STERIS PLC Stock
Quote Price | Morningstar, 2019).
Weighted Average Cost of Capital
The weighted average cost of capital for the company was derived by taking the exposure
of debt and equity the company has an the relevant costs associated with the same. The weighted
average cost of capital for the company is calculated to be around 5.92% which was well
consistent with the industry standards (STERIS Plc. Stock Report, 2019).
Weighted Average Cost of Capital
Market Cap (M)/Weight of Equity 10195.32
Book Value of Debt 1397.181
Weight of Equity 88%
Weight of Debt 12%
Total 100.0%
Cost of Equity = Risk-Free Rate of Return + Beta of Asset
* (Expected Return of the Market - Risk-Free Rate)

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Risk Free Rate of Return (Rf) 1.32%
Beta 1.08
Expected Return on Market 6%
Cost of Equity 6.37%
Cost Of Debt = Interest Payment/ Total long Term Debt
Interest Expenses 50.629
Book Value of Debt 1397.181
Cost of Debt 3.62%
Tax Rate 28.97%
WACC 5.92%
Conclusion
The financial analysis of the Steris Corporation was done thereby identifying the
financial performance of the company and the financial position of the company. The financial
condition of the company was found to be stable and after examining the risks associated with
the company in he form of business and financial risk it is recommended that the management of
the company should have various strategies and plans for tackling the same. The opinion of
Analysts in regard to the stock has also been positive which shows that the expectation for the
stock in respect to performance is assessed to be at a rising stage.

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References
2019 US and Global Health Care Industry Outlook. (2019). Retrieved from
https://www2.deloitte.com/us/en/pages/life-sciences-and-health-care/articles/us-and-
global-health-care-industry-trends-outlook.html
Li, X., Xie, H., Chen, L., Wang, J., & Deng, X. (2014). News impact on stock price return via
sentiment analysis. Knowledge-Based Systems, 69, 14-23.
Luo, X., Wang, H., Raithel, S., & Zheng, Q. (2015). Corporate social performance, analyst stock
recommendations, and firm future returns. Strategic Management Journal, 36(1), 123-
136.
Research and Analysis for - MSN Money. (2019). Retrieved from
https://www.msn.com/en-in/money/stockdetails/analysis/nys-ste/fi-a23ocw
STE STERIS PLC Stock Quote Price | Morningstar. (2019). Retrieved from
https://www.morningstar.com/stocks/xnys/ste/quote.html
Steris Plc Financial Analysis. (2019). Retrieved from
https://in.finance.yahoo.com/quote/STE/analysis?p=STE
STERIS Plc. Stock Report. (2019). Retrieved from https://www.nasdaq.com/symbol/ste/stock-
report
Williams, E. E., & Dobelman, J. A. (2017). Financial statement analysis. World Scientific Book
Chapters, 109-169.