Liquidity Ratio Analysis of Steris Corporation: Financial Health

This report focuses on analyzing the financial health of Steris Corporation by examining its liquidity ratios over five years, from 2014 to 2018. Steris, a leading provider of infection prevention and procedural products, primarily serves pharmaceutical, healthcare, and medical device customers. The analysis includes the computation and interpretation of the current ratio, quick ratio, and debt-equity ratio. The current ratio, ranging between 2 and 3, indicates the company's ability to comfortably meet short-term obligations. The quick ratio, between 1.8 and 2.1, further supports this, showing strong liquidity even when excluding less liquid assets. The debt-equity ratio improved from 0.82 to 0.62 over the period, indicating a healthier balance between debt and equity. The report concludes that Steris Corporation maintains a stable liquidity position and is well-positioned to meet its financial obligations.

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Table of Contents
Introduction................................................................................................................................2
Analysis of financial health........................................................................................................2
Current ratio...........................................................................................................................3
Quick ratio..............................................................................................................................3
Leverage ratio / Debt-equity ratio..........................................................................................4
Conclusion..................................................................................................................................5
Reference....................................................................................................................................6

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Introduction
The main objective of the report is to focus on financial health of Steris Corporation
through analyzing its liquidity ratios for the last 5 years starting from 2014. Steris is the
leading provider for infection prevention as well as other procedural services and products.
Primarily the entity is focused on pharmaceutical, healthcare and customers with medical
devices. Main objective of the entity is to assist the customers to create a safer and healthier
world through delivering innovative healthcare and services and product related to life
science all over the world (Steris.com, 2019).
Analysis of financial health
Liquidity ratio computation
Liquidity ratios scrutinize the company’s financial health through measuring its
ability to pay off the current obligation as they become due. In other words, the liquidity
ratios analyses the cash level of the entity and ability to turn other assets into cash to pay off
the short-term as well as long term obligation. It does not only measure the cash level of the

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business, it further measures how easy it is for the entity to convert its assets into cash over
short-term period (Chen et al., 2014).
Current ratio
Current ratio measures the ability of the entity to cover the short-term obligations with
the the current assets. It is computed through dividing the current assets of the company by
current liabilities. Current ratio of 1 or more indicates that the entity is well-positioned and is
able to pay off its short term dues. While the current ratio is analyzed the investors shall be
aware of the fact that this is not the entire story of liquidity position (Ehiedu, 2014). It is also
crucial to understand regarding the type of current assets available with the entity and how
quickly they can be converted into cash for paying off the current obligation. Inherently the
current ratio assumes that entity will or can liquidate all or most of the current assets to
remain as going concern. However, it will still require a particular level of working capital.
Entities with high current ratio are considered to be safer as compared to the entities with low
current ratio. However, beyond current ratio the analyst shall also look into the quality and
composition of current assets available with the entity (Holden, Jacobsen & Subrahmanyam,
2014).
Looking into the current ratio of Steris Corporation for the period from 2014 to 2018,
it can be identified that the current ratio of the entity over last 5 years has not fluctuated much
and were ranging between 2 to 3. For all the years the current ratio is more than 2 that
indicates that the company is well-positioned and is able to pay off its short term dues
comfortably (Steris.com, 2019).
Quick ratio
Quick ratio that is also known as the acid-test ratio, is the liquidity ratio that refines
the current ratio further through measuring the most liquid asset’ level that is available to

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cover up the current liabilities. Quick ratio is considered as more conservative as compared to
the current ratio as it does not consider inventories and prepaid expenses those are more
difficult to be converted into cash. Higher quick ratio represents highly liquid position of the
entity (Diamond & Kashyap, 2016). It is calculated through dividing the quick assets
including accounts receivable, cash equivalents and marketable securities by current
liabilities. Quick ratio is considered as better indicator for gauging the liquidity position as
coverage provided by the assets for the current liabilities of the entity include only the assets
those can be converted quickly into cash. As the inventories are considered as less liquid it is
not considered as quick asset. Though the ideal quick ratio depends on the business of the
company and the industry under which it operates. Applying the rule of thumb, current ratio
of 1 or more indicates that the entity is well-positioned and is able to pay off its short term
dues (Brunnermeier & Sannikov, 2014).
Looking into the quick ratio of Steris Corporation for the period from 2014 to 2018, it
can be identified that the quick ratio of the entity over last 5 years has not fluctuated much
and were ranging between 1.8 and 2.1. For all the years the quick ratio is more than 1 that
indicates that the company is well-positioned and is able to pay off its short term dues
comfortably without considering the assets those takes time to get converted into cash
(Steris.com, 2019).
Leverage ratio / Debt-equity ratio
Debt to equity ratio or the leverage ratio is used to compute the weight of total debt
and other financial liabilities against total equity. It is computed through dividing total
liabilities of the entity by total equity. Higher debt-equity ratio indicates that the company is
levered and it is generally preferred by the entities with stable generation of cash flow (Kroes
& Manikas, 2014). However, it is not preferred by the entity with low growth as large amount
will be expensed towards interest expenses. Though the ideal debt-equity ratio depends on the

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business of the company and the industry under which it operates. Applying the rule of
thumb, debt-equity ratio of 0.5 or more indicates that the entity has balance among debt and
equity (Dokas, Giokas & Tsamis, 2014).
Looking into the debt-equity ratio of Steris Corporation for the period from 2014 to
2018, it can be identified that the same for the entity over last 5 years were in improving
trend and were reduced from 0.82 to 0.62. Hence, it can be stated that the leverage position of
the company has been improved over the past years and the debt-equity position of the entity
is quite balanced (Steris.com, 2019).
Conclusion
From the above discussion it can be concluded that the liquidity position of Steris
Corporation over the last 5 years are stable and the entity is well-positioned to meet its short
term as well as long term obligations. For all the years under concern current ratio is more
than 2 and quick ratio is more that 1 which indicates that the company is able to pay off its
short term dues comfortably. Further, the leverage position of the company has been
improved over the past years and the debt-equity position of the entity is quite balanced.
Hence, the allover liquidity position of the entity is good.

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Reference
Brunnermeier, M. K., & Sannikov, Y. (2014). Monetary analysis: price and financial
stability. In Proceedings ECB Forum on Central Banking, Sintra (pp. 61-80).
Chen, R. R., Chidambaran, N. K., Imerman, M. B., & Sopranzetti, B. J. (2014). Liquidity,
leverage, and Lehman: A structural analysis of financial institutions in crisis. Journal
of Banking & Finance, 45, 117-139.
Diamond, D. W., & Kashyap, A. K. (2016). Liquidity requirements, liquidity choice, and
financial stability. In Handbook of macroeconomics (Vol. 2, pp. 2263-2303). Elsevier.
Dokas, I., Giokas, D., & Tsamis, A. (2014). Liquidity efficiency in the Greek listed firms: a
financial ratio based on data envelopment analysis. International Journal of
Corporate Finance and Accounting (IJCFA), 1(1), 40-59.
Ehiedu, V. C. (2014). The impact of liquidity on profitability of some selected companies: the
financial statement analysis (FSA) approach. Research Journal of Finance and
Accounting, 5(5), 81-90.
Holden, C. W., Jacobsen, S., & Subrahmanyam, A. (2014). The empirical analysis of
liquidity. Foundations and Trends® in Finance, 8(4), 263-365.
Kroes, J. R., & Manikas, A. S. (2014). Cash flow management and manufacturing firm
financial performance: A longitudinal perspective. International Journal of
Production Economics, 148, 37-50.
Steris.com. (2019). Company Overview | STERIS Corporation. Retrieved 15 February 2019,
from https://www.steris.com/about/company/

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