Financial Condition Analysis
In MBA Fpx 5014 Assessment 1, HCA’s evaluation will provide Healthcare with a way to recommend strategies to enhance shareholder value. HCA Healthcare, Incorporated, similarly to Healthcare Corporation, also operates with ambulatory surgical centers, hospitals, urgent care centers, and outpatient clinics. However, it also has a division that contains freestanding emergency care facilities, walk-in clinics, and imaging centers (Who We Are, n.d.). It manages a total of 182 hospitals and 2,400 ambulatory centers in 21 states and the United Kingdom (Investor Update, 2022). It also operates a cancer center, a medical malpractice insurance company, a healthcare services improvement company, a private nursing college, a revenue cycle management company, and an IT company. In 2021, they invested $3.3 billion in land, buildings, and equipment and spent another $3.3 billion on charity care, self-paying discounts, and unaccounted-for care (Corporate Profile, n.d.).
Overall Financial Analysis
In general, financial Healthcare is operating in a strong position in the healthcare sector. The company’s market price has remained constant, but its price-to-earners ratio has increased by an average of $1.48 annually from 2017 to 2019. There has been an increase in the price-to-book ratio, with it still remaining below one, which rationalizes it as a good investment. Having conducted an analysis of the company along with its closest competitor, HCA Healthcare, recommended strategies will later be provided to put a stop to these issues and optimize value for the shareholders.
Financial Ratio Analysis
As far as the market prices go, it is how much a buyer is willing to pay for a good or service considering the current demand and supply situation (Mitchell, 2020). Suddenly, unforeseen changes like natural disasters, stock market crashes, tax reliefs, political violence, and a surge in commodity prices can cause an instant shift in the supply or demand of a service.
The price-to-earnings ratio (P/E ratio) reflects how much an investor is ready to invest for every dollar earned, making it an essential tool in analyzing a company’s stock valuation. It not only indicates whether a stock price is over or undervalued but also gives an idea of the relative value of other companies in the same industry or broader benchmarks like the S&P 500 (Murphy, 2022). What an investor is ready to pay to keep the stock in the present, against its historical earnings or expected future earnings, is also shown through the P/E ratio.
Earnings Per Share is defined as the profit allocated to each outstanding Share of a company’s stock, and it is one of the most important factors to consider when determining a company’s P/E ratio. As profit increases relative to share Price, a company’s higher EPS suggests public investors are willing to pay more for shares of that company (Fernando, 2022). Like all other financial ratios, EPS is best understood when analyzed in relation to the financial performance of competing firms in the same industry.
MBA Fpx 5014 Assessment 1 Financial Condition Analysis
Carol Carlson explains that a shareholder’s equity or net asset value refers to how much a company is worth. This includes real estate property, cash, inventory, and useful equipment minus the liabilities or owed taxes. Shares represent a portion of the business that is available to the public for buying and selling. Book value per Share (BVPS ) is when the available equity to common stockholders is divided by the outstanding shares of stock in a company. It provides an estimate of the per-share value of a company’s net assets. A company that has book value physical inventory is generally at a greater advantage because they are able to use the BVPS. On the other hand, tech companies do not have office and equipment tools to measure their future profits.
The Price-to-book ratio (P/B ratio) is a ratio of a company’s share price to the book value of its assets and liabilities. Investors can take advantage of P/B ratios to establish if a particular stock is misplaced. An investor will not lose if he buys stocks with a P/B ratio of 1.0. Stocks with a low ratio can be used by value investors to actively search for misleadingly priced stocks. On the other hand, high values can also mean robust returns for the company, no matter how inflated the stock price point is.
Trend Analysis
From 2017 to 2019, Healthcare’s market price remained unchanged at $83.62. At first glance, it would seem that Healthcare boasts a healthy market position considering the stable market price, but the book value per Share, or the equity divided by outstanding shares, indicates otherwise. In fact, the company is very appealing to investors who wish to purchase the firm, liquidate it, and secure a risk-free profit (Hayes, 2022).
In contrast to its P/E ratio, MBA Fpx 5014 Assessment 1 healthcare’s earnings per Share have been on a steady decline from $9.15 in 2017 to $7.87 in 2018 and to $6.91 in 2019, which totals to an economic loss of $2.24 from 2017 to 2019 suggesting the company’s income is declining, costs are increasing, or new shares have been issued (Price, 2022). If this decrease in EPS was expected, then it may also offset the need for a further increase in stock price.
Healthcare’s P/E ratio has increased on average by $1.48 annually each year from earning $9.14 in 2017 and $10.63 in 2018 to $12.10 in 2019, which indicates that investors are now willing to spend $1.48 more for $1 of earnings each year. It is clear that investors find value, as shown by the increasing P/E ratio, meaning that they are willing to pay higher prices at the moment with the anticipation of business growth in the future. If a business with a high P/E is viewed as an overvalued stock, then that is true, but this is only possible when compared to other firms in the healthcare sector, such as HCA Healthcare’s stocks (Murphy, 2022). Reff: MBA 5014
Financial Analysis HealthCare
Book Value Per Share (BVPS) for financial analysis Healthcare has nosedived from $226 in 2017 to $209.05 in 2018 and to $199.10 in 2019. Even though the BVPS is still higher than the market price, as mentioned above, this ROI of $26.90 over a three-year period at this step will have a big adverse effect on the company’s overall financial position. The book value of the healthcare organization, however, provides the measurement of the standing of the firm’s finances but does not predict future growth (Carlson, 2022).
MBA 5014 Healthcare P/B ratio has improved from $0.37 in 2017 to $0.40 in 2018 to $0.42 in 2019, although it still remains under one. This indicates that investors are willing to pay $0.05 more per Share for $1.00 of book value equity. A P/B ratio under one is regarded, generally, as good business; however, it may also suggest to investors certain assets of the business might be overvalued, causing negative returns or poor returns on assets (McClure, 2022).
Competitive Comparative Analysis
Healthcare is in direct competition with HCA Healthcare. For this case, we will focus on HCA Healthcare for the years 2017 to 2019. We will be focusing on their cash flow analysis, balance sheet, and their income statements. A predetermined date captures a given firm’s assets, liabilities, and shareholders’ equity, which is recorded in the balance sheet. An income statement gives an account of income and expenditures that reflect a company’s operations for a set timeframe and determines the profitability of a business. The statement of cash flows accounts for the varying amounts of cash during an accounting period, including overall profit, capital assets, investment, as well as changes in equity and debt (Ross et al., 2021).
MBA Fpx5014 Assessment 1 Financial Analysis
HCA Healthcare’s market price grew more than twofold during the period from 2017 to 2018, but from 2018 to 2019, it was essentially flat. It also experienced a revenue growth of 7% in 2017, alongside the acquisition of Mission Health, which is a six-hospital system based in North Carolina that is regarded to be one of the top 15 health systems in America. Also, they bought Memorial Health, located in Georgia, and North Cypress Medical Center in Texas. In addition, HCA Healthcare has increased its accessibility to healthcare services (Annual Report, 2019). Even though the stock price and value of the shares of the company that is acquiring another company tend to decrease in the short run, the company will benefit when share values are appreciated in the long run (Bloomenthal, 2022).
HCA Healthcare also bore the brunt of the hurricanes Harvey and Irma, which affected most of their coastal markets, which probably explains why they had such a low market price that year (2017 annual report, 2018). From MBA Fpx 5014 Assessment 1 Healthcare’s perspective, the relative stability of the market price would suggest that there has been no growth to increase the market price and also no unexpected shocks to worsen it.
Related Samples Paper: MBA Fpx 5014 Assessment 2 Evaluation of Healthcare
From 2017 to 2018, HCA Healthcare reported a sharp increase in earnings per Share (EPS) from 6.12 to 13.40. This boost could potentially correlate with the 2018 repurchase of 14.070 million shares. Alongside this purchase, HCA also initiated an additional share repurchase program authorizing up to $2 billion of its own stock (HCA Reports, 2019). High EPS is likely to compel investors to pay a premium for the company’s shares. This is because they stand to benefit more than the initial investment. The three acquisitions made by HCA Healthcare in 2018 would also explain the increased EPS, as the health system had higher profits after acquiring three new health systems. On the other hand, ABC Healthcare’s EPS has been reduced, which suggests that there is less revenue or increased expenditures.
Company Price to Earning Ratio
The company’s Price-to-earnings ratio steadily increased from 11.70 in 2017 to 14.30 in 2019. This implies that investors are willing to pay an average of $1.30 more for every $1 of earnings value, anticipating its future cash flow growth. This is consistent with HCA Healthcare’s growth in 2018. In turn, Healthcare’s P/E ratio increased with a willingness to pay $1.48 more in exchange for a $1 earnings value. The company does not seem to be planning any known growth initiatives for the company, which is why, in comparison to HCA Healthcare, the stock is overvalued.
If negative book value per Share exists in Healthcare, it would mean, in essence, that the company’s liabilities exceed its assets. HCA Healthcare was BVPS negative for the entire period of 2017 to 2019. In 2017 alone, the company spent 3 billion investing in current facilities while spending an additional 1.2 billion dollars purchasing eight hospitals in Texas and Florida, as explained in the 2017 annual report for 2018.
HCA HealthCare liabilities
From 2017 to 2019, HCA Healthcare had more liabilities than assets. Their assets included $36.593 million in 2017, which grew to $39.207 million and $45.058 million, but their liabilities constantly grew as well, from $41.588 million to $42.125 million and $45.623 million (HCA | HCA Healthcare Inc. balance sheet, 2022). Continuing to assess the balance sheet, the company components of the HCA equity capital in the years 2020 and 2021, the company went back to positive BVPS after deficits in 2018 and negative in 2019.
For clarification, the company was able to cut its repurchased common stock from shareholders during the previous years, and this can be noticed in the numbers growing from the Earnings three-year formula obtained -19.22 in 2018 and -10.42 in 2019. Unfortunately, Healthcare has experienced an issue of subperiod positive issue BVPS greater than the market issue price, and the only positive indicator is decreasing negative value, which implies danger to the company regarding its financial position.
A negative BVPS means that the Price to book ratio is also negative, which can indicate an impending bankrupt business. HCA Healthcare has argued that the negative BVPS, and subsequently the negative P/B ratio, stems from their massive buybacks and expansions from 2017 to 2091. Based on the above mentioned (that HCA Healthcare) is not on the brink of bankruptcy, this is very evident with the turnaround during 2020 HCA. In addition, 2019 brought new leadership with the exit of R. Milton Johnson as director and CEO (HCA Healthcare chairman, 2018), which, alongside the new leadership, can also improve the P/B ratio (McClure, 2022). As mentioned above, ABC Healthcare’s P/B ratio has still not gone above 1, suggesting it is an attractive business venture that was sensible from 2017 to 2019 but not quite everywhere.
Recommendations
MBA Fpx5014 Healthcare should buy additional hospitals or health systems and develop new specialty services like walk-in clinics, emergency rooms, and outpatient imaging centers so profits will increase along with the market price. Although this would hurt earnings in the short run, it would give Healthcare the opportunity to realize long-term gains. There should be serious thought on the financial feasibility of the acquisition so as not to stretch the company too thin financially.
Together with increasing the health system expansion as recommended, Healthcare should start increasing their market share by reducing common stock flotation, giving shareholders an opportunity to invest their money where it will yield greater profits. This should, in turn, result in improved EPS and market price.
Proposing bonuses or stock options for senior executives, individual business unit managers, and frontline personnel with superior performance ratings makes a lot of business sense. Recently, during the COVID-19 pandemic, pay was supplemented for frontline medical staff in large health systems as a means of retaining these essential workers (Shepherd, 2022). Retention and recruitment of staff enables the hospital system to increase the annual patient encounters, and therefore the revenue.
Conclusion
HCA Healthcare has indeed shown how it can increase shareholder value with its numerous acquisitions, changes in management, and common stock buybacks. They have also suffered decreases in their Price to book ratio in the short term between 2017 and 2019 due to expansion but are showing increases as early as 2020. MBA Fpx 5014 Assessment 1 Healthcare’s Price-to-earnings and Price-to-book ratios suggest that the company has solid investment, but implementing the recommendations above would enable it to increase shareholder value in the long term.
References
HCA Healthcare Annual Reports 2017 Annual Report to Shareholders. HCA Healthcare (2018, February 23) 2018 Annual Report to Shareholders. HCA Healthcare (2019, February 21)