Jan 17, 2018

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

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Assignment 2: Using Financial Ratios to
Assess Organizational Performance

Due Week 6 and worth 240 points

Using the financial statements from your
selected health care organization in Assignment 1(ASSIGNMENT 1 IS ATTACHED),
develop a financial plan for the next three (3) years.

Write a four (4) page paper in which you:

  1. Suggest the financial ratio that most financial analysts would
    use to evaluate the financial condition of the company. Provide support
    for your rationale.
  2. Speculate on the organization’s ability to meet its financial
    obligations as they come due. Provide support for your rationale.
  3. Based on your ratio analysis, determine whether the
    profitability trends are favorable or unfavorable and explain your
    rationale.
  4. Using financial ratio analysis, predict whether or not the
    company will be viable in five (5) years based on its performance over the
    past three (3) years. Provide support for your prediction.
  5. Use at least two (2) 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.
  • Describe the overall planning process and the key components of
    the financial plan.
  • Use technology and information resources to research issues in
    health financial management.
  • Write clearly and concisely about health financial management
    using proper writing mechanics.

REFER TO THE ATTACHED ASSIGNMENT 1 FOR MORE INFORMATION ON
THE FINANCIAL STATEMENTS OF UNIVERSAL HEALTH SERVICES. THIS ASSIGNMENT IS A CONTINUATION OF THE ATTACHED ASSIGNMENT 1.


Universal
Health Services Financial Analysis

Student’s
name

Affiliation

Universal
Health Services Financial Analysis

1.
Based
on your review of the financial statements, suggest a key insight about the
financial health of the company

Universal Health
Services has shown consistence in the growth within its financial operations.
Over three years running from 2011 up to 2013, the Net revenues after provision
for doubtful debt have steadily increased. This is a good sign even though the
worrying increase in provision for doubtful accounts is a course of concern. In
order to enjoy greater net revenues than previous years, UHS has to invest in
its collection and recovery department. One notable investment is in Electronic
Health Records (EHR) which has shown approximately 100% increase in its income
(Universal Health Services Inc., 2014). This must be a main contributor to the
steady net revenue since its initiation. Further investment in this area should
see further diminishing operational expenses based on efficiency and
reliability of the E.H.R. The net income from operations has therefore been
steady and an equally satisfying trend is witnessed in the balance sheet with
an overall increase in Fixed and Current Assets since the year 2011 (Universal
Health Services Inc., 2014). Therefore, further analysis to determine the
financial health of the organization is derived from the 2013 reports as
follows:

·
Current
Ration
= Total Current Assets/ Total Current
liabilities (Brigham & Houston, 2014).

Figures are

In Thousands

A (T. C. A)

(000’s)

B (T.C.L)

(000’s)

C.R= A/B

2013

1,432,329

1,059,888

1.4

2012

1,407,496

894,058

1.6

The current
ratio indicates the ability of an organization to meet its short term
liabilities, which are characterized by a repayment period not exceeding 1year
(Brigham & Houston, 2014). In 2012, UHS ability to cover short term was 1.6
dropping by 0.2 in 2013. The general recommendation of a suitable current ratio
lies in the range of 1.5 to 3 but can vary depending on the industry. A higher
C.R is desirable but when it substantially exceeds the identified upper limit
it’s an indication of idle resources. When it drops below the loser limit it
indicates a possible strain in meeting short term debts. In 2012, despite
having less net revenue and net income, UHS stood a better chance than 2013 in
terms of meeting short term liabilities. The C.R dropped in 2013 to expose UHS
to a potential risk of not comfortably meeting short term liabilities, unless
it resorted to external borrowing. This is not a major issue especially due to
the constant growth in revenue, which gives UHS financial leverage in terms of
external borrowing (Brigham & Houston, 2014).

·
Profit
Margin Ratio=
Profit after Tax/ Net sales

Figures
are

In
Thousands

A(Profits
After

Tax)

B
(Net Sales)

P.M.R=
A/B

2013

554,023

7,283,822

0.076

2012

489,047

6,961,400

0.07

2011

448,870

6,760,222

0.06

P.M.R
indicates the efficiency level in which costs are controlled by an
organization. The PMR rose steadily from 6%, 7% to 7.6%, between 2011 and 2013.
The steady increase shows stability in the management control and cost
minimization. The higher the percentage of P.M.R, the more the ability of UHS
to cover its fixed costs while retaining some revenue as profit (Brigham &
Houston, 2014).

The increasing P.M.R should give investors more returns
in form of dividends or increase in share values. The dropping C.R should
however worry employees especially if the drop is persistent in the next few
years. This would mean reduction some expenses. A possibility will be shading
off some casual laborers and thus forcing permanent employees to do extra
chores. A radical choice would be to trim fewer permanent employees to retain
or increase the casual laborers/ contractors. The strong PMR however gives some
consolation against such drastic measures. The long- term lenders such as banks
are assured of constant installment remittances from UHS.

2.
Identify
the current industry trend that has the most significant impact on your chosen
organization’s financial performance.

UHS
like its peers is suffering from increasing levels of bad and doubtful debts
due to the high population of uninsured patients. The nationwide index show an
increasing number of patients who are either not seeking medical insurance or
are locked out of the system (Beishem, Young & Weizsacker, 2012). Treating
uninsured patients is more expensive than those medically covered and UHS
suffers more than its competitors because of its extensive network. As a
contingency measure, UHS should profile all bad/ doubtful debts as soon as
incurred and channel the patients to a financial assistance office (if
non-existent UHS should establish one in every branch). The office should exhaust all insurance
options and advice affected patients accordingly. At least everyone qualifies
for some percentage of “free care funds”, an establishment by hospitals in
various states to partially cover patients unable to meet their medical
expenses (Lefemine, 2012). Extreme cases but with an ability to pay can have a
liaison officer attached to them, and initiate an installment payment after
thorough scrutiny of the patients income records.

3.
As
the CFO, suggest one (1) key strategy that you might use in order to improve
the financial performance of the organization.

Having witnessed the expense reduction through E.H.R
introduced in 2012 and keeps growing in 2013. I would advice intensive
investment in upgrading all operations beyond healthcare to electronic mode.
This should centralize information control and harmonize administrative
decision making leading to reduction of overtime and excess wages. Reduction of
salaries and wages should be my priority because these form the highest
expense.

References

Beishem, M, Young, O. &
Weizsacker, E. (2012). Limits to
Privatization: How to Avoid Too Much of a Good Thing.
Hoboken: Taylor and
Francis.

Brigham, E. & Houston, J.
(2014). Fundamentals of Financial Management, Concise Edition. Boston, MA:
Cengage Learning.

Lefemine, A. (2012).Us and World Medical Care.Bloomington,
IN: Xlibris
Corporation.

Universal Health Services Inc.
(2014). UHS Annual Report Archive.
Retrieved from:.uhsinc.com/about-us/uhs-annual-report-archive/”>http://www.uhsinc.com/about-us/uhs-annual-report-archive/


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