Business Strategies

2

Acadia healthcare

Student’s Name

Institutional affiliation

Capital structure

The capital structure of the organization can be understood by looking at the debt to equity ratio of the company which is at 0.89. The debt to equity ratio of the organization is favorable because the company finances its activities with more equity when compared to debt. This is a good thing as financing the company with more debt would put the organization at risk because debt has to be repaid and incase of liquidation the creditors are given a priority. It is good that the company uses more equity in its financing; 48% debt and 52% equity. The company should work towards lowering the amount of debt more and increasing equity financing (Jackson, 2021). This can be attained through an IPO where the business will issue more shares to the public.

Profitability

The net profit margin of the company as at September 30, 2021 was -29. 32% and this shows that the company made a loss that year. This is not a good indicator as it shows that the company was not left with any finances after settling expenses, interest, and depreciation costs for the year. The return on equity (ROE) was also unfavorable in the financial period as it was at -29.51% and this shows that the company did not make good use of the capital invested by shareholders in earning revenues for the organization (Mohanan, 2021). The ROA was at -13.14% which is unfavorable; the company needs to put the company assets into more use so that they can generate more revenue (Mohanan, 2018). The company however got a ROI of 10.48%; this is a good rate and it shows the company was able to get a return on the investments made. The company can lower the expenses of the business so as to increase the net profit margin.

Cashflows

The cashflows of the company are from three sources; operating activities investing activities, and financing activities. The company’s operating cashflows are more compared to the cashflows the company makes from other activities. The operating cashflow as at September 30, 2021 were at110,117,000 an this shows that the company for the period was able to make cashflows from the operating activities. The activity that earns the company more cashflows is “funds from operations” and this means that the company earns most of its cashflows from its core business and day to day activities. The company’s investing and financing cashflows are not desirable because in both segments the company made negative cashflows. This shows that the company was making losses for the financing and investing activities because the cash outflows were more than the cash inflows.

Performance of the stock over the last five years

In the last five years the stock prices have been showing a positive trend. The company stock price decreased in 2019 from 2018, and after that the stock prices have been increasing in the last four years. The company does not yet pay dividends in the last five years and that is why the dividend payout ratio has been 0% for the last five years and the dividend yield as well (Robinson, 2020). As much as it is recommended to pay dividends so that the company can attract more investors, the company cannot be able to pay dividends if it does not make enough profits and hence to be able to pay dividends Acadia healthcare needs to lower the expenses of the company so that it can earn more profits.

Performance of the firm

The performance of the company can be analyzed by looking at the performance in the last five years and by also comparing the performance with the major competitor of the company. Looking at the net profit margin of the company for the last five years it has been making negatives in some of the years which means that the company has been making losses. The net incomes for the company are showed by the graph below.

The performance of the organization can also be described by the trend of the liquidity ratios of the company. The current ratio of the company has been increasing for the last five years but is not still at the favorable level because the current ratio is below two which means that the company does not have twice as much current assets as its current liabilities which is the recommended level.

The company has more equity than debt but the debt equity ratio has been increasing in the last five years and this is not a good indicator as it shows that the company is adding more debt to its financing and that is not a good thing (Robinson, 2020). Looking at the efficiency ratios of the company, the receivables turnover of the company has been showing a positive trend over the last five years. The asset turnover has been fluctuating in the last five years; it has been increasing and decreasing (Jackson, 2021). The main competitor of the company is HCA healthcare which is doing way better financially than the organization. The profits of HCA healthcare in the last year were at $12.37 billion which is high compared to the company’s which made losses in the period.

References

Jackson, A. B. (2021). Financial statement analysis: a review and current issues. China

Finance Review International.

Monahan, S. J. (2018). Financial statement analysis and earnings forecasting. Foundations

and Trends® in Accounting, 12(2), 105-215.

Robinson, T. R. (2020). International financial statement analysis. John Wiley & Sons.

Net income for the last five years

2020 2019 2018 2017 2016 672 109 -176 200 6