05 May An 6-8 slide presentation to your staff describing your analysis, linking what tools you utilized and why you chose those tools. You will use data to support your evidence-bas
An 6-8 slide presentation to your staff describing your analysis, linking what tools you utilized and why you chose those tools. You will use data to support your evidence-base financial decisions. You will also explain your recommendations to maximize stakeholder value, translating those to tactical outcomes to be implemented by your staff.
Introduction
This assessment builds on your prior work in Assessments 1 and 2. It is a presentation to your staff describing you analysis, linking what tools you utilized and why you chose those tools. You will use data to support your evidence-base financial decisions. You will also explain your recommendations to maximize stakeholder value, translating those to tactical outcomes to be implemented by your staff.
- Apply the theories, models, and practices of finance to the financial management of an organization.
- Analyze financing strategies to maximize stakeholder value.
- Apply financial analyses to business planning and decision making.
- Use data to support evidence-based financial decisions.
Scenario
The senior leadership has approved your recommendations to move forward. You are now tasked with operationalizing your recommendations. Meeting with your staff, you will translate recommendations to strategies and corresponding tactical objectives. You will explain how you used financial analysis to develop these recommendations, discussing the financial tools you will use to monitor implementation progress.
Your Role
You are one of the high-performing financial analyst managers at ABC Healthcare Corporation and are under consideration for a promotion to Director of Operations.
Requirements
Follow these steps to complete this presentation:
- You are presenting to your staff a summary of the reports presented to senior leadership (Assessments 1 and 2).
- Start by presenting the overall current financial condition of the company as presented to senior leadership (one to two slides).
- Provide an overview of your analysis, linking what tools (financial statements, ratios, industry trends, capital structure) you utilized and why you chose these tools (two slides).
- Link the data used to support your evidence-based financial decisions, providing justification for the recommendations (two slides).
- State the recommendations focused on maximizing stakeholder value into strategies newly adopted by the company, i.e., expansion to a new geographical market, the development of a new dividend policy, changes in capital expenditures, reduction of workforce (one slide).
- Translate those strategies to tactical objectives to be implemented by your staff, noting evidenced-based academic citations (one to two slides).
- Discuss what financial tools you will use to monitor the progress of these tactics (one slide).
Deliverable Format
- Be sure to use a bullet format in your slides but also include detailed narrative supported by relevant literature citations in the notes section.
- Ensure written communication is free of errors that detract from the overall message and quality.
- Use at least three scholarly resources.
- Length: 6-8 content slides in addition to title and reference slides.
- Use 12 point, Times New Roman.
Evaluation
By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies through corresponding scoring guide criteria:
- Competency 1: Apply the theories, models, and practices of finance to the financial management of an organization.
- Demonstrate an understanding of key financial tools (financial statements, ratios, industry trends, capital structure, competitive analysis) by providing an overview of the analysis used supporting recommendations made in Assessments 1 and 2. Provide a rationale for why tools were utilized.
- Competency 2: Analyze financing strategies to maximize stakeholder value.
- Link the data used to support evidence-based recommendations, translating the recommendations to strategies focused on maximizing stakeholder value.
- Competency 3: Apply financial analyses to business planning and decision making.
- Translate strategies to tactical objectives to be implemented by staff, noting evidenced-based academic citations.
- Competency 4: Use data to support evidence-based financial decisions.
- Evaluate and recommend financial tools to be used to monitor the progress of these tactics.
Your course instructor will use the scoring guide to review your deliverable as if they were your CEO. Review the scoring guide prior to developing and submitting your assessment.
1
Financial Condition Analysis
Taccarra Manuel
Capella University
FPX5014
Professor: John Halstead
April 30, 2023
Contents Executive Summary 3 Company Background 3 Overall Financial Analysis 3 Financial Ratio Analysis 4 Trend Analysis 4 Competitive Comparative Analysis 6 Recommendations 6 Conclusion 8
Financial Condition Analysis
Executive Summary
ABC Healthcare Corporation owns various healthcare facilities, such as hospitals, surgical centers, urgent care centers, and outpatient clinics. This report provides an analysis of the financial statements of ABC Healthcare Corporation for the fiscal years 2017-2019, as well as an evaluation of the company's true condition and valuation. The financial ratio, trend, and comparative analyses suggest that ABC Healthcare Corporation has a stable financial condition and is performing well, given the industry standards. The company outperforms its closest rival, HCA Healthcare, in several financial ratios. The analysis proposes three recommendations to maximize shareholder value: 1) increase operating income, 2) improve asset management, and 3) optimize capital structure.
Company Background
The healthcare corporation known as ABC manages establishments that focus on surgeries, outpatient services, immediate care, and hospitalization. Originating in 1995, it has expanded profoundly since then. By 2019 more than one could count hospitals (56), ambulatory surgical centers (47), urgent care units(20), and clinics outside these venues had reached a total number of 171. The yearly earnings for this particular year were marked at $45 billion worth of revenue to their name's account ledgers during that time frame which is quite significant indeed.
Overall Financial Analysis
ABC Healthcare Corporation has observed an annual augmentation in its overall earnings for three years. In 2017, this growth rate was a 5% increase and progressed further by achieving a rise of approximately 6% over one year. The company's operational earnings have recorded significant growth rates in the last three years, with a 6% jump observed between 2017 and 2018, followed closely by another hike of approximately 9% witnessed from year-end comparison figures in subsequent fiscal years periods. The absolute profit of the corporation has persistently remained steady, undergoing a diminutive decrease in digits by 2% from 2017 up until 2018. However, it ascended again with an increase of about three percent throughout its fiscal year in 2019.
Financial Ratio Analysis
ABC Healthcare Corporation's 2019–2017 P/E ratios were 12.10, 10.63, and 9.19. The 2019 P/E ratio shows investors are willing to pay $12.10 for every $1 of earnings. The company's P/B ratio rose from 0.37 in 2017 to 0.42 in 2019. In 2019, investors will pay $0.42 for every $1 book value, according to the P/B ratio.
The corporation has enough assets to meet its current liabilities, as the current ratio has been constant for three years. The company's liquidity may diminish due to the quick ratio's three-year decline. Over the past three years, the company has used more equity and less debt to finance its operations. The asset turnover ratio has been steady for three years, showing that the company generates consistent revenue per dollar of assets. Over the past three years, the company's return on assets (ROA) has decreased, indicating a decline in asset efficiency. The company's return on equity (ROE) has been stable for three years, showing a consistent profit per dollar of stock.
Trend Analysis
Over three years, ABC Healthcare Corporation's revenue, operating income, and net income have exhibited a noteworthy growth trend. Regarding its current ratio measurement, this enterprise has remained unaffected regarding liquidity while experiencing a decline within the bounds of its quick ratio metrics. Furthermore, it is evident that there is now less reliance on debt as an avenue for financing operations given recent developments; specifically noted through decreased occurrences of debt-to-equity ratios therein indicating greater emphasis towards alternate methods in financial procurement which warrant consideration moving forward.
Contrarily, the declining trend of the organization's gross profit margin over three years implies a surge in competition or augmentation in production expenses. It could also signify that some adjustments have been made to what ABC offers regarding services or products. The reason behind this reduction should be scrutinized and handled accordingly for remedial measures.
An additional concerning pattern concerns the inventory turnover ratio within this organization, which has declined in recent years spanning three. This event potentially suggests management's inadequacies in overseeing stock levels and excessive accumulation of products that are difficult to sell. Effective scrutiny and modification should be made around existing practices to enhance inventory turnover for optimal operational outcomes.
In market trends, there is a swiftly progressing healthcare industry wherein technology progresses and regulations fluctuate. ABC Healthcare Corporation should monitor such trends keenly with strategic readjustments to retain competitiveness while simultaneously fulfilling customer demands undergoing development.
Despite the consistent expansion of ABC Healthcare Corporation, certain disquieting patterns demand immediate action. For the company to stay ahead in an ever-changing healthcare landscape, a comprehensive evaluation and preemptive measures should be taken against these developments.
Competitive Comparative Analysis
Today's competitive market requires businesses to stay on top of their competitors and make adjustments to stay ahead of the competition. To gain a competitive advantage, ABC Healthcare Corporation needs to conduct a comparative analysis of its competitors.
One of ABC Healthcare Corporation's main competitors is HCA Healthcare, which also operates in the healthcare industry. Regarding revenue, HCA Healthcare has been consistently outperforming ABC Healthcare Corporation. In 2022, HCA Healthcare published figures indicating that its total revenue amounted to $5.643 billion. Coincidentally during this period, ABC Healthcare Corporation reported a marginally lower value than HCA, with their financial records reflecting eight billion dollars' worth in revenues. This suggests that HCA Healthcare is doing something differently, which ABC Healthcare Corporation can learn from.
ABC Healthcare Corporation has performed better than HCA Healthcare based on profitability. ABC Healthcare Corporation's net income margin has been consistently higher than both competitors. This suggests that ABC Healthcare Corporation is better at managing costs and generating profits.
Recommendations
ABC Healthcare Corporation must prioritize the augmentation of its revenue to maintain competitiveness. It is recommended that said corporation delve deeper into broadening its product and service portfolio to bring onboard more clients (Denis, 2019). Furthermore, there would be merit in examining pathways toward entering fresh domestic and international markets.
It would also behoove ABC Healthcare Corporation to prioritize the enhancement of its quick ratio. Although sustaining consistency in its current ratio has been possible, there is evidence that a quick-waning ratio may impede the corporation's ability to satisfy immediate obligations (Denis, 2019). To overcome this challenge, it is prudent for the company to explore viable strategies to augment cash reserves and mitigate short-term liabilities.
Improve Profitability: Despite the augmented revenue and net income, there has been a nominal drop in profit margins (Denis, 2019). For this reason, to increase profitability, the company must reduce operating expenses such as overhead costs involved with employee compensation and marketing expenditures. Moreover, augmenting revenue streams by expanding product offerings or venturing into new markets are other areas that warrant exploration for improving profit margins.
Extending considerable resources on research and development is necessary for the healthcare industry's ever-evolving landscape, as companies must maintain their edge. ABC Healthcare Corporation has room to allocate additional funds to R&D endeavors, resulting in pioneering products and services that can elevate market share while distinguishing itself from its competitors.
One strategic move ABC Healthcare Corporation can make is optimizing its capital structure. The company's debt-to-equity ratio has quite a high number that could spell out risk for investors in the long run. The corporation may want to evaluate various financing options before deciding how best to design its capital structure anew — from bringing forth new equity on the one hand; to refinancing existing debts on another.
Ultimately, the business must sustain its efforts toward curbing its debt-to-equity ratio. Albeit a consistent reduction in this proportion over time, the company's lesser dependence on borrowed funding for operations signifies an optimistic development. Further exploration into strategies for reducing outstanding debts and augmenting equity ought to be pursued by management without conceding.
Conclusion
In conclusion, ABC Healthcare Corporation has performed well in revenue, operating, and net income. However, the company must focus on increasing its revenue to stay competitive in the healthcare industry. The company should also address its quick decreasing ratio and reduce its debt-to-equity ratio. By making these changes, ABC Healthcare Corporation can improve its financial position and gain a competitive advantage in the market.
Reference
Denis, D. K. (2019). The Case for Maximizing Long‐Run Shareholder Value. Journal of Applied Corporate Finance. https://doi.org/10.1111/jacf.12362
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Running head: Evaluation of capital projects 1
Evaluation of capital projects 7
Evaluation of capital projects
Capella University
Taccarra Manuel
Professor: John Halstead
May 3, 2023
In ensuring there is consistency in the computations of capital budgeting, a standard capital budgeting tool is used in computing the value of the projects in relation to profitability. There are three main tools used in the analysis of the three projects: Net Present Value (NPV), Internal Rate of Return (IRR) and Payback Period
|
Project A |
Project B |
Project C |
|
Cash outlay/upfront cost =$10,000,000 Benefit =Reduce cost of sales by 5 percent. Initial cost of sales =0.6*20,000,000=12,000,000 Amount saved for the company =0.05*12,000,000 =$600,000 |
Benefit = Increase sales revenue by 10%. New sales =1.1*20,000,000= $22,000,000 Increased sales =$2,000,000 Cost of sales =12,000,000 New cost of sales =1.1*12,000,000 =$13,200,000 Increased cost of sales =$1,200,000 Increased sales margin =$800,000 Upfront cost= (7,000,000+1,000,000) =$8,000,000 Required rate of return =12% |
Cost =$2,000,000 per year for 6 years. Total cost (Present value of 6-year cost payment) =$12,000,000 Benefit of the project= Increase sales by 15% New sales =1.15*20,000,000 =$23,000,000 Increased sales =$3,000,000 Increase in cost of sales =1.15*12,000,000 =$13,800,000 Increase =$1,800,000 Net benefit /increased profit margin as a result of the project =3,000,000-1,800,000 =$1,200,000 |
|
Determining NPV of the three projects |
||
|
NPV =($7,437,983.37 |
NPV =($5,116,179.04 |
NPV= ($6,773,687.16) |
|
Internal Rate of Return of the three projects |
||
|
IRR= -13.94% |
IRR=-19.4% |
IRR=-12.9% |
|
Payment period |
||
|
PP=10,000,000/600,000= 16.6 years |
PP=8000,000/800000 =10 years |
PP=12,000,000/1200000 =10 years |
In the computations, a key assumption is made that the depreciation expense is provided for by the organization. This is because the MACRS-7 year schedule assumes that an asset depreciated does not have a residual value of $500,000. Based on the computations made, there are conclusions that are made in relation to the viability of the projects. Based on the net present value (NPV), none of the projects realize a profit based on the expected duration at which the projects are expected. This is evident as the net present value of each of the projects is a negative, an indication of a loss (Al Breiki & Nobanee, 2019).
Based on the Internal Rate of Return (IRR), project C is better compared to Project A and B as it has a lower negative rate of return compared to the other projects. However, a negative internal rate of return means the project is not viable for the organization in the given period. This is because the company will not have realized the initially cash invested in establishing the project.
Relevance of capital budgeting tools
Net present value (NPV) is used in computing the value of each of the three projects in determining the most viable project that the company should focus at. NPC is preferred in the three projects in ensuring the conclusions made can easily be compared to provide meaningful decision conclusions. Since factors like inflation and lost compound interest cause future cash flow to differ significantly from current cash flow, NPV must be adjusted accordingly. The ability to calculate net present value helps project managers determine whether or not it makes sense to carry forward with a given venture by providing an accurate estimate of the return on their original expenditure. The program translates the expected return into current currency, giving decision makers more assurance with which to proceed with business choices right away. In light of the company's present financial state, NPV can shed light on the potential benefits of the projects. In determining the value of each of the three projects, the expected cash inflow is analyzed individually per project to determine the cash inflow that the project brings to the company either as a result of reduced cost of sales or increased sales revenue (Malenko, 2019).
Companies use IRR to choose which capital projects to fund, but investors may also use it to assess the profitability of potential asset purchases. Managers can compare the potential returns of various assets using an IRR, which is a method of financial analysis. In order to determine which initiatives offer the best return on investment, company executives employ internal rate of return calculations. The Internal Rate of Return (IRR) starts with a discounted rate that has a zero net present value. Predicted returns are based on the cost of capital, or the total amount needed to fund the project (Prestmo, 2020). Projects whose returns surpass their capital expenses are prioritized by business executives, and those with the greatest IRR are selected.
Payback period is the third tool employed. The amount of time an investment takes to turn a profit is called its payback period. Since people and businesses invest money primarily to make a profit, the payback period is critical. The rate at which an investment pays off is of paramount importance. Divide the original investment by the typical cash flows to get the payback time, which is useful information for investors.
Recommendations
From the capital budgeting activity of the three projects, there is an need to incorporate best practices in determining the value of each of the three projects. The following best practices are proposed which would help in project planning in the future and avoid poor timing that does not yield to profitability.
Timing of the cash flow: The time value of money dictates that monetary flows accrue greater value the sooner they are received. This is so due to their immediate use in a variety of investment vehicles and potential uses in other initiatives. In other words, the horizon for financial flows that occur earlier in time is wider. This makes them more valuable than future cash flows (Malenko, 2019). Capital budgeting should take cash flow into account.
Actual cash flows based decisions: The capital planning process should only take into account future cash flows. Sunk expenses should be disregarded. This is because the effects of sunk costs on the company's financial statements have already been felt. Therefore, they should not bea factor into the profitability of future endeavors.
Interest, taxes, and amortization and depreciation are non-project expenditures, thus they should not be factored into a project's profitability. Project A was planned contrary to this practice as it factored depreciation of the asset using the MACRS 7-schedule and which assumes the asset has no residual value. This affects the reliability of the computation output. Assuming the same capital source will be used to fund all of the projects and all cash flows would be reported in the same tax regimes, these factors are relatively consistent. Management may compare the NPV, IRR, and payback periods of the projects in question to arrive at a conclusion. This is helpful from a capital budgeting standpoint when assessing projects with intangible strategic value. Considering the outlined best practices, the management should have adjusted the expected payback periods of each of the projects in determining the viability of the projects before making proposals on the projects (Prestmo, 2020).
Reference
Al Breiki, M., & Nobanee, H. (2019). The role of financial management in promoting sustainable business practices and development. Available at SSRN 3472404.
Malenko, A. (2019). Optimal dynamic capital budgeting. The Review of Economic Studies, 86(4), 1747-1778.
Prestmo, J. B. (2020). Investments and capital budgeting practice: Is there a difference between small and large firms.
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