Finance Question

Financial Analysis

Name:xxx xxx

Date: May 12, 2016

Professor: Dr. xxxx Coon.Jr.

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, develop a financial plan for the next three (3) years.

Write a four to five (4-5) 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.

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.

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

The most important financial analysts use to evaluate the financial condition of the company are ratios analysis. It provides analysts a picture of financial health of an organization. Analysis of ratios help to compare about numbers and ratios over time. Ratios can be wisely used for comparison and decision making at the company. Ratios are a way for organizations to compare themselves with competitors and the industry (Finkler, Kovner, and Jones, 2007). Similarly, the most important ratio in financial analysis is profitability ration. The profitability ratio in a financial analysis is the ability of the organization to generate a profit. This ratio looks at areas such as net income, revenue, gross profit, earnings before taxes and interest and operating profit to name a few. Profitability shows the bottom line numbers for a company and is the goal that most organizations strive for. Ratios examined were gross profit margin and net profit margins. In general the success of an organization is judged by its profitability other than anything else. Another tool that is widely used by financial analysts is the comparison of revenue and expenses ratio.

2. Speculate on the organization's ability to meet its financial obligations as they come due. Provide support for your rationale.

To meet the financial obligations as they come due United Health Services, Inc. should determine its ability to meet the financial obligation by prioritizing organization’s financial issues. The mostly or widely used ratio in health care organization to meet is financial obligation is the current ratio. So it is calculated by dividing the current assets of the organization by its current liabilities. The current ratio of an organization should be 2:1 whereas UHS’s current ratio in 3 years period is 1.35:1, 1.36:1 and 1.57:1 respectively.

This shows that, the organizational current ratio is not up to the level of ideal or industry current ratio in any of the past three financial years. Moreover, in the year 2013 and 2014, the organizational current ratio has also slightly declined to a certain level (Income Statement, 2016).

3. Based on your ratio analysis, determine whether the profitability trends are favorable or unfavorable and explain your rationale.

While preparing financial statements analysis in healthcare or any organization it is important to make sure that all the information is taken into account and examined properly. Using ratio analysis can help financial analysts determine the financial health of UHS. It is important that everything on the financial statement remain balanced. By using ratios UHS can compare two different areas to determine the strengths and weaknesses in financial matter. So, ratio analysis is a very important form of analysis for UHS. The financial ratio analysis will help the organization to make sure that it determines whether, the organization will be in the position to viable for a period of 5 years. In relation to the financial analysis, certain ratios will be taken into consideration. In relation to the ratios, the organization will consider net profit ratio, current ratio, return on equity and return on assets. These ratios will help in determining the viability of the organization in the future.

Net Profit Ratio:

	2013	2014	2015
Revenue	6961400	8,205,088	9,043,451
Net Profit	443446	398167	230183
Net Profit Ratio	6.37	5.89	4.70

The first ratio is the net profit ratio. This ratio is a crucial ratio and provides information regarding the ability of the organization to reduce its expenses to a considerable level. The net profit ratio of the organization should not go down from the past years (Balance Sheet, n.d.). The net profit ratio of the organization for the past three years has been provided below. The table shows that, the net profit ratio of the organization has been on an increasing trend.

	2013	2014	2015
Current Assets	1,718,304	1615138	1432329
Current Liabilities	1,100,406	1182827	1059888
Current Ratio	1.56	1.36	1.35

The second ratio is the current ratio. The current ratio of the organization shows the ability of the organization to pay off its short term debt obligations. This particular ratio of the organization should be around 2:1. The table provided below shows the current ratio of the organization for the past 3 years. The current ratio of the organization has not changed much in

the last 3 years. Regarding the current ratio, though, the organization has not been able to reach the ideal level but, it does not fall behind the ideal level by a lot.

The third ratio is return on equity (ROE). ROE measures the ability of the organization‘s profitability by revealing how much profit UHS generates with the capital shareholders have invested. The ROE chart for the past 3 years shows that the UHS profit has decline in the return 2013. But in 2015 the ROE went up. (ROE = Net Income/shareholders Equity).

	2013	2014	2015
Net Income	510,733	545,343	680,528
Total Assets	8,311,723	8,974,443	9,634,113
Return on Equity

T

The fourth ratio is return on asset ratio. The return on assets ration provides information regarding the organizational ability to convert its net income into assets (Bragg, 2012). The organizational return on assets for the last 3 years has been provided below. In relation to the return on asset of the organization, it can be said that, the organization has seen growth in /

The profitability ratio in a financial analysis reflect the ability of the organization to operate with excess of operating revenue over generate a profit. This ratio looks at areas such as net income, revenue, gross profit, earnings before taxes and interest and operating profit to name a few. Profitability shows the bottom line numbers for a company and is the goal that most organizations strive for. Ratios examined were gross profit margin and net profit margins.

(Net Profit =Operating Income (Loss)/Total Operating Revenue)

The profitability trend of Universal Health Services, Inc. is going to be important to find out the net profit ratio for the period of last 3 years. According to yahoo finance income statement UHS’s net profit ratio in 2013 was 4.70%. In 2014 the net profit ratio was increased by 1.19 %. Similarly, in 2015 it has been increased from 5.89% to 6.37%. This trend shows positive trend has been abled increase profit in last three years. From its past three years profit it can be projected that, Universal Health Services, Inc. is in the position to have a positive impression in the future to its investors, employees, and concerned stakeholders .

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.

From the financial ratios analysis Universal Health Services, Inc. is doing good in terms of financial performance. Based on it three years financial statement analysis (2013-2015)It is absolutely viable to carry out its activities in the period of 5 years, the organizational net profit ratio; return on equity and return on equity have gone up. Moreover, the current ratio of the organization is also not very low. Therefore, the viability of the organization is definitely there.

References

Income Statement. (n.d.). Retrieved No 7, 2013 from http://finance.yahoo.com/q/is?s=UHS+Income+Statement&annual

Balance Sheet. (n.d.). Retrieved November 7, 2013 from http://finance.yahoo.com/q/bs?s=UHS+Balance+Sheet&annual

Bragg, M.S. (2012). Financial Analysis: A Controller’s Guide. (2nd ed.). John Wiley & Sons.

Shim, K.J. & Siegel, G.J. (2007). Handbook of Financial Analysis, Forecasting, and Modeling. CCH.

Baker, J. (2014.) Healthcare finance: Basic tools for nonfinancial managers (4th ed.). Sudbury, MA: Jones and Bartlett.

Learnscape 1.0. (2013) Sudbury, MA: Jones & Bartlett Learning. Students access Learnscape through the online learning platform, Blackboard.