MBA FPX5014 Assessment 1 Financial Ration Assessment
Assessment 1: Financial Ration Assessment
Month Date, Year
Financial Ration Assessment
The current report aims to explore and analyze the organization’s financial health and future recommendations. The current scenario relates to Maria Gomez who is the is founder and president of ABC Healthcare Corporation. The organization owns several hospitals and surgical centers to provide urgent care to patients. The owner called the professional team to make recommendations to maximize shareholder value. This report that analyzes financial ratios for a company and through the data, the financial story of that company is told to the management to make better decisions.
Analysis of Financial Ratio Analysis from Each Category
ABC Healthcare Corporation’s Chief Financial Officer evaluated the firm’s market value by examining its price/earnings proportions. For instance, the price/earnings ratio is used to measure the valuation of a stock in relation to its profits (Valeska et al., 2018). The officer’s calculation of the price/earnings ratio was based on determining earnings per share and dividing it by the market value. The overall financial analysis on the basis of data given by the company as follows:
The overall health of the company is determined by analyzing its financial ratios analysis. The ratios will help the organization to cover current debt obligations as the officers will decide how many funds to deride from operating and non-operating activities (Irawati et al., 2019). This means that higher the ratios, the organization is in a good financial health or a position to meet its financing commitments. For example, ratio analysis aims to combine figures and numbers from the financial statements to facilitate comparisons.
The price/earnings ratios include market price for 2017 as 83.62, earning per share as 9.15, and price to earnings ratio 9.14. They are 83.62, 6.91, and 12.10 for 2019. Moreover, the CFO also considered the earning per share data to further analyze the company’s health. For the 2019, the book value per share is given. The marker price is 83.62, book value per share is 199.1, and price to book ratio is 0.42.
This value is vital that helps to see the equity level shareholders are willing to pay for the net assets value. If the price to book ration value falls below 1, it is considered as a positive and worthy investment. Therefore, 0.42 is a sold investment indication that shows company’s good financial health. According to this rival’s data, the price to sales ratio is also higher than 1 that does not show a good use of investment to drive better revenues. This shows that the lower P/S ration of our organization is better than the rivals (Irawati, 2019).
Evaluation of Financial Statements
Since the company’s closest rival is HCA Healthcare Inc., the company’s earnings per share is +21.16, operating profit is 29.44, and sales are 178.71. The company’s balance sheet shows that the total debts are $10 billion compared to the total debts of rivals HCA Inc. as 40.70. The total liabilities are also lower than the HCA Company which is 20.73 and 52.73 respectively. Total shareholder’s equity for our HCA is -3.68 B while our organization has $-1.68 B. The capital expenditure for the HCA is -1.08 B and our organization is also $-1. however, the trend shows an increase in the upward trajectory for the organization (Valeska, 2018).
Actionable Items and Conclusions Based on the Data Analysis
According to Yakima (2019), the healthcare organizations can improve and maximize their shareholder values. There are a few techniques and strategies the organization based on the above analysis of the financial data can use to increase the shareholder value. For example, the organization can increase their unit price and increasing the price per patient can help the organization to improve its overall yearly profits. Moreover, the organization can maintain an increase fixed cost utilization. The hospital must also address some data quality concerns and issues such as and it should avoid some of those concerns:
- Zero total revenues
- Negative value of net assets
- Negative value of current assets o
- Negative value of current liabilities
- Negative value of cash on hand
- Patient accounts receivable also negative
- Zero inpatient days
- Zero outpatient charges
Moreover, the fact remains that significantly higher indicator values are not always good for the company. Most indicators must have middle range values and extreme values are not good for the financial health of the company. The company has indicators that look good relative to the rival organization. To avoid making company’s financial position difficult, managers must improve their judgment while analyzing the financial and operating performance (Lee, 2021).
Furthermore, the organization also needs to ensure that the shareholders’ value in the next few years for the long term is good. The company must also look for the ways to increase its net cash flows to the owners. This can help the management to reduce the riskiness. The owners can increase cash flow in the healthcare organization by improving revenues. The revenue increase should not be at the cost of lowering the gross profit margins. Moreover, increasing overall profit margins can also help the company to increase its revenues in the long run and improve shareholders’ value. The company must find out and pursue more growth opportunities. It should focus on good efforts on the products or services which yield the higher profit margins. The organization must also reduce the efforts regarding low-margin business lines and also improve its overall operational efficiency (Restani, 2018).
Finally, the organization must also create a five-year growth strategy; this could be done by brainstorming a comprehensive list of potential actions to increase profits. The managers must evaluate the new ideas and how much revenue they can generate and the amount of effort they need to fill the revenue gap. The shareholders’ value is mostly associated with the debt-financing and due to lower nursing staff levels; there is a labor cost constraint. Therefore, the organization must develop a model of corporate governance that helps the management to view frauds and help them to reduce poor quality of services to save business costs.
Restani, T., & Agustina, L. (2018). The effect of financial ratios on financial distress conditions in sub industrial sector company. Accounting Analysis Journal, 7(1), 25-33.
Lee, D., & Yoon, S. N. (2021). Application of artificial intelligence-based technologies in the healthcare industry: Opportunities and challenges. International Journal of Environmental Research and Public Health, 18(1), 271.
Yakima, L. (2019). The use of discriminant analysis in the assessment of the municipal company’s financial health.
Valeska, K., Kliestik, T., Svoboda, L., & Adamko, P. (2018). Financial risk measurement and prediction modelling for sustainable development of business entities using regression analysis. Sustainability, 10(7), 2144.
Irawati, N., Maksim, A., Sedalia, I., & Muda, I. (2019). Financial performance of Indonesian’s banking industry: The role of good corporate governance, capital adequacy ratio, non-performing loan and size. International Journal of Scientific and Technology Research, 8(4), 22-26.