FONAR Corp. :FONR-US: Earnings Analysis: Q3, 2017 By the Numbers : June 6, 2017

FONAR Corp. reports financial results for the quarter ended March 31, 2017.

We analyze the earnings along side the following peers of FONAR Corp. – iCAD, Inc., Hologic, Inc., Digirad Corporation, Medtronic plc, Royal Philips NV Sponsored ADR, DaVita Inc., American Shared Hospital Services, Navidea Biopharmaceuticals, Inc. and General Electric Company (ICAD-US, HOLX-US, DRAD-US, MDT-US, PHG-US, DVA-US, AMS-US, NAVB-US and GE-US) that have also reported for this period.


  • Summary numbers: Revenues of USD 20.01 million, Net Earnings of USD 5.90 million.
  • Gross margins widened from 45.95% to 54.06% compared to the same period last year, operating (EBITDA) margins now 34.34% from 26.46%.
  • Year-on-year change in operating cash flow of 16.04% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth from operating margin improvements as well as one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017-03-31 2016-12-31 2016-09-30 2016-06-30 2016-03-31
Relevant Numbers (Quarterly)
Revenues (mil) 20.01 18.4 18.73 18.77 18.62
Revenue Growth (%YOY) 7.46 0.19 6.38 11.21 8.91
Earnings (mil) 5.9 4.24 3.57 6.36 3.01
Earnings Growth (%YOY) 96.34 21.44 24.77 11.69 48.84
Net Margin (%) 29.49 23.05 19.06 33.91 16.14
EPS 0.88 0.63 0.54 0.98 0.46
Return on Equity (%) 31.13 23.99 21.51 40.74 20.11
Return on Assets (%) 26.2 19.45 16.7 30.5 14.79

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Market Share Versus Profits

Revenues History
Earnings History

FONR-US‘s change in revenue this period compared to the same period last year of 7.46% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that FONR-US is holding onto its market share. Also, for comparison purposes, revenues changed by 8.72% and earnings by 39.09% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s earnings growth was influenced by year-on-year improvement in gross margins from 45.95% to 54.06% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from 26.46% to 34.34% compared to the same period last year. For comparison, gross margins were 49.12% and EBITDA margins were 29.73% in the last reporting period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

FONR-US‘s gross margin improvement has not produced any big difference in its working capital. Working capital days are currently 153.64, compared to last year’s level of 151.67 days. This leads Capital Cube to conclude that the improvements in gross margins are likely from operating decisions and not trade-offs with the balance sheet.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

FONR-US‘s change in operating cash flow of 16.04% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings


The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from 22.00% to 30.00% and (2) one-time items. The company’s pretax margins are now 29.90% compared to 21.62% for the same period last year.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

FONAR Corp. engaged in the business of designing, manufacturing, selling and servicing magnetic resonance imaging scanners. The company operates through two segments: Medical Equipment and Physician Management & Diagnostic Services. The Medical Equipment segment manufactures and sells magnetic resonance imaging scanners, which utilize MRI technology for the detection and diagnosis of human disease, abnormalities, other medical conditions and injuries. The Physician Management & Diagnostic Services segment is conducted through Health Management Corp. of America, which is a wholly-owned subsidiary. It provides management, administrative, billing and collection services, office space, equipment, repair, maintenance service and clerical and other non-medical personnel to medical providers. Fonar was founded by Raymond V. Damadian on July 17, 1978 and is headquartered in Melville, NY.

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