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Universal Health Services Financial Analysis

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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).

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

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.