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UsingFinancial Ratios to Assess Organization Performance

Edwin Togba

Strayer University King of Prussia

Dr. James Coon

HSA 525 Health care Finance

November 12, 2013

Suggest the financial ratio that most financial analysts would use to evaluate the financial condition of the company. Provide support for your rationale.

I will suggest these as the five and most commonly used ratio by most financial analysts to evaluate the financial condition of the company. (1) Debt – equity ratio is a qualification of a firm’s financial leverage estimated by dividing the total liabilities by stockholder’s equity. This ratio indicates the proportion of equity and debt used by the firm to finance its assets. Example CTC scanner in a hospital or a rented property. Rationally how much of the stockholder equity is expanded in acquiring these assets. (2) Current ratio is a liquidity ratio which estimate the ability of the firm to pay back short- term obligations when due. This ratio is also known as cash assets ratio. A higher current ratio indicates the higher capability of the firm to pay back its debt. Current ratio is computed by dividing current assets / current liabilities. From 2009 2010 2011 for universal health service

These are the assets and liabilities:

3,964,400/1,989,500 7,527,900/5, 929,400 7,665,200/5,099,200

= 1.99 or 2 = 1. 26 or 1.3 = 1.5 or 2

From a rationale point of view, I will support my position by saying that the company did well for the periods that were compared. Normally the industrial average is in the range of 2 to 1, and the computation above give a clear indication as to how the company stand in this regard.

(3) Return on equity is the amount of net income returned as a percentage of the shareholders equity. Moreover, the return on equity estimate the profitability of a corporation by revealing the amount of profit generated by a company with money invested by shareholders. This is express as percentage which is computed by net income divided by shareholder equity. Rationally “shareholders are owners of a company. They purchase stock because they want earn a good return on their investment without undue risk exposure”. ( Brigham & Ehrhardt financial management pg 9, 2011). I will support my stand here by saying the primary objective of any company or corporation is to maximize shareholders value. As a result, it the return on assets falls below expectation, shareholders will be concern.( 4)

Running head: You are an Investment Analyst

“You are a Financial Analyst”

Edwin Togba

Strayer University King of Prussia

Dr. James Coon

HAS 525 Health care Finance

November 1, 2013

As a financial analyst I am responsible for making recommendations about investments and money saving strategies. Analyst does work for large corporation for which universal health services falls in that category. The core function of an analyst is to study at the client’s assets to look for different ways in which to grow them for the concern client, in this case is universal health services. My probe will focus on the income statement, balance sheet and statement of cash flow from 2009- 2011.

According to the book, balance sheet records what an organization owns, what it owes, and what it is worth. Income statement is the of the financial statement that measures a company or an organization’s performance over a specific accounting period This done by giving clues or summary as to how the organization incurs its revenue and expense via both operating and non-operating means or activities. It also indicates the net profit or loss incurred over a specific accounting period, typically over a fiscal quarter or year.

A statement of cash flow is complement income statement and balance sheet. It is a mandatory record of the amount of cash and cash equivalent entering and leaving an organization. This allows investors to learn how an organization in this case universal health services operation is running, where the money is coming from and how it is being spent. Investors also learn how cash flow is structure and how an analyst can used this information to interpret that organization cash flow standing going forward.

Now I will turn my attention analyzing the statement I mentioned in this paper. The first one will be the income statement, from 2009 to 2011.

Income statement measures an organization’s financial performance over a specific accounting period. It is also refer to as profit and loss statement. For the period under consideration the organization was profitable.

Total revenues as of: 2009,

2010,

2011, (All in Million).

$ 4,693.6 $ 4,900.1 $ 6, 760.2

Gross profit: 1,790.1 1,818.3 2,628.4 (BusinessWeek).

As an analyst, I sensed an increase in revenues on the income statement for universal health services for the period under consideration and I am encouraged to continue on this path. Also investor should invest in the organization because history is on their side. This is the assurance investors are looking forward to. Investors are the external viewers of this important information, whereas management forms the inter part of the viewers. The trend is on an upward projection for both revenue and profit.

The next part of the financial statement I will look at will be the balance sheet. According to the book, balance sheet records what an organization owns, what it owes, and what it is worth. Income statement is the of the financial statement that measures a company or an organization’s performance over a specific accounting period

It gives clues or summary as to how the organization incurs its revenue and expense, operating and non-operating means or activities. It also indicates the net profit or loss incurred over a specific accounting period, typically over a fiscal quarter or year. It is also known as the organization health or snapshot of health.

Again for the period under consideration in this analysis:

Total Assets as of: 2009, 2010, 2011, (All in millions).

$3,964.4 $ 7,527.9 $ 7,665.2

Total Liability $ 1,989.5 $ 5,929.4 $ 5,099.6 (BusinessWeek).

This information is encouraging to both internal and external viewers. What investors are looking for on an organization balance sheet is information that will tell them about the financial health of the organization. In other words is the organization is in the position to meet its financial obligation when due. In this case base on the analysis it yes because an asset in this case exceeds liability. If it is the other way round investors will pull away from the company which means the company could be on the path of bankruptcy. The primary objective of any publicly trading organization is to maximize shareholders values ( Brigham & Ehrhardt , pg 9, customized 13 edition financial management).

Reference:

Baker, J.& Baker, W. Healthcare finance. Basic tools for nonfinancial managers. Third edition

Eugene, F. Brigham, Michael C. Ehrhardt Financial management, theory and practice customized 13 edition.

http:// investing.

Businessweek.com/research/stocks/financials/financials.asp?ticker=UHS&…11/1/2013

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Assignment 1: Financial Statement Analysis

Due Week 4 and worth 200 points

Select one (1) of the following publically traded health care organizations: Universal Health Services (NYSE: UHS) or Health Management Associates (NYSE: HMA).

Suppose you are a newly appointed CFO of your chosen health care organization. One of your first tasks is to conduct an internal financial analysis of the organization. Conduct a brief financial analysis and review of the chosen company’s financial statements for at least three (3) consecutive years. After conducting the analysis, interpret the data contained within the statements.

Write a three to four (3-4) page paper in which you:

1.Based on your review of the financial statements, suggest a key insight about the financial health of the company. Speculate on the likely reaction to the financial statements from various stakeholder groups (employee, investors, shareholders). Provide support for your rationale.

2.Identify the current industry trend that has the most significant impact on your chosen organization’s financial performance. Indicate the trend’s impact on the financial performance of the organization. As the CFO, suggest at least one (1) way that you might minimize the impact of the trend on the organization.

3.As the CFO, suggest one (1) key strategy that you might use in order to improve the financial performance of the organization. Recommend an approach to implement the suggested strategy. Provide support for your recommendation.

4.Use at least four (4) quality academic resources. Note: Wikipedia and other Websites do not qualify as academic resources.

Your assignment must follow these formatting requirements:

•Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions.

•Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.

The specific course learning outcomes associated with this assignment are:

•Evaluate the financial statements and the financial position of health care institutions.

•Analyze the role of important financial reporting statements – income statement, balance sheet, and statement of cash flows – and explain how they relate to one another and to the underlying sources of data.

•Use technology and information resources to research issues in health financial management.

•Write clearly and concisely about health financial management using proper writing mechanics.