The financial health of a company can be improved over years by improving costs, building up reserves and managing the funding mix. The company's financial health can also be improved by managing overhead costs. The overhead costs have an inverse impact on the company's profitability. The financial health of a company can be improved over years by improving costs, building up reserves and managing the funding mix. The company's financial health can also be improved by managing overhead costs. The overhead costs have an inverse impact on the company's profitability.
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Health Management Associates (NYSE: HMA)
HMA is a company established in 1977 that runs acute care health care facilities in America. The HMA offers facilities like internal medicine, surgery, emergency room care, oncology, diagnostic care, radiology, and pediatric services. It also offers x-ray, lab, respiratory therapy, and physical therapy. The company has total 71 hospitals having above eleven thousand beds.
Conduct an internal financial analysis of Health Management Associates
With annual revenues increased to $5.87 billion, the company is showing growth in many areas. The internal financial analysis of the company gave following figures:
Year
2012
2011
2010
Liquidity Ratios
Current Ratio
Cash Ratio
21%
27%
36%
Quick Ratio
Profitability Ratios
Operating Margin
10%
11%
11%
Profit Margin
3%
4%
3%
Pre-Tax ROE
30%
41%
55%
After Tax ROE
16%
23%
29%
Data Interpretation
The company's ratio analysis shows that the current ratio has decreased over period (HMA Company Financials, 2013). The company has 151% or 1.51 current ratio. The decrease in current ration means the company has less cash to pay its debt hence the management needs to take steps about it. The current assets should be increased on one hand and current liabilities should be decreased.
The cash ratio tells about amount of cash for paying short-term liabilities. It tells creditors about credit history of company (Financial Analysis, 2009). The company has 21% or 0.21 cash ratio that means to pay $100 immediate loan, the company has $21 which is not satisfactory.
Quick ratio of company is decreasing as well that means it is losing its capacity to quickly convert assets into cash to pay the current liabilities. The ideal is 1:1 but the company has 135% that means 1.35 quick ratio that means it has too much cash on hands that may indicate issues with account receivables.
The company's profitability ratio operating martin value is 10% or 0.1. That indicates the pricing strategy and operating efficiency of company. The company's operating margin decreased from 11% that means operating margin is decreasing.
HMA's profit margin was 3% in 2010, 4% in 2011 and 3% once again in 2012. That shows what amount of every dollar earned converts into profit. Thus the company has profit margin fluctuating in a small range.
The return on equity of company is decreasing in since last three years. Thus the company requires investing more in equity to earn returns.
Financial Health of HMA
Every entity, person or organization has some financial health. The financial health shows if the entity has enough finances, it pays loan in time, and how does it manage the finances. The financial health of the company is not very ideal yet it can deal with challenges. The company has decreasing current, cash and quick ratios that inform the creditors that the company is gradually losing the ability to pay its short-term debt. Yet, the company is still in the safe zone. However, it keeps too many cash on hand that may tell the shareholders that the finances are not fully utilized. Also the shareholders will like the company's profitability to grow which is currently deteriorating. The company employees will be happy to find that HMA is paying its debt in time and managing finances and investments to grow the size of organization.
Current industry trend
The health care industry is globalizing at an ever faster speed and increased intensity, Parmer (2013) says which a challenge for many organizations like HMA is. The companies are expanding overseas and having strategic alliances with local pharmacists, companies and hospitals. Since about 25% people are willing to travel for getting a better treatment, the companies plan to move to them and offer services locally. This will offer these companies a chance to trade globally too. There are chances that in such a scenario the shareholders and investors may be attracted to the shares and bonds of global companies. Thus, as the CFO of company, I might look for getting access to international stock exchanges so that the foreign investor is attracted. This needs improving HMA's financial performance and health so that the investors and shareholders can be attracted.
Strategy
The financial health of a company can be improved over years by improving costs, building up reserves and managing the funding mix. The company's financial health can also be improved by managing overhead costs. The overhead costs have an inverse impact on the company's profitability (Newman, 2007). The increase in overhead costs decreases profitability while decrease in overhead costs increases profitability. There are many overhead expenses that include rent, advertising, consultant fee, indirect labor, and other indirect charges.
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