Internal financial analysis of Health Management Associates

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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.

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.

The overhead charges can be reduced in many ways. As a CFO, I can evaluate which departments are incurring most overhead charges and why. If the overhead rent charges are quite high, an area can be built that can serve as the depository so that the rents decrease over period. Besides that the indirect labor should be reduced. The company can ask the regular employees to help shipping so that extra labor is not hired. The advertising will be strategically planned in such a way that the message reaches maximum number of people by playing the ad minimum times.