Financial Condition Analysis

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Financial Condition Analysis

Introduction

It’s essential for senior management to know the financial condition of an organization in order to make strategic decisions. In this assignment you will apply the financial management skills learned thus far.

  • Tell the financial story based on financial statements.
  • Conduct a financial analysis and identify focus areas for enhancing shareholder value.
  • Interpret ratio computations that are meaningful and inform business decisions and strategies.
  • Make three recommendations that maximize shareholder value.

Scenario

Maria Gomez is founder and president of ABC Healthcare Corporation, a company that owns hospitals, ambulatory surgical centers, urgent care centers, and outpatient clinics. She has called on you to review various financial documents and to make recommendations to maximize shareholder value.

Your Role

You are one of Maria’s high-performing financial analyst managers at ABC Healthcare Corporation and she trusts your work and leadership.

Requirements

Here is what your report should provide for Maria:

  • A summary of the financial strength of the company through your analysis of the price/earnings and price/book ratios.

The CFO for ABC Healthcare Corporation assessed the market value by reviewing its price/earnings ratios. The price/earnings ratio determines the market value of a stock as compared to the company’s earnings. The price/earnings ratios are listed in the chart below. To calculate the price/earnings ratio, the CFO took the earnings per share and divided that into the market value. As an example, this means that in 2019 investors were willing to pay $12.10 for $1 of earnings.

 
Price/Earnings Ratio 2019 2018 2017
Market Price 83.62 83.62 83.62
Earnings Per Share 6.91 7.87 9.15
Price/Earnings Ratio 12.10 10.63 9.14

To further assess market value, the CFO looked at book value per share. The book value per share ratio is the per share value of a company in terms of the equity available to stockholders. The book values per share over the past three years are listed in the chart below:

 
Price/Ratio Ratio 2019 2018 2017
Market Price 83.62 83.62 83.62
Book Value per Share 199.1 209.05 226
Price to Book Ratio .42 .40 .37

The price-to-book ratio (P/B ratio) compares a firm’s market capitalization to its book value. It’s calculated by dividing the company’s stock price per share by book value per share. Here, for fiscal year 2019, the book value per share ratio was 0.42. This explains that investors were willing to pay $0.42 for $1 of book value equity. Price to book value is an important measure to see how much equity shareholders are paying for the net assets value of the company. P/B ratios under 1 are typically considered solid investments.

  • Based on your analysis, what is your general perception of the company’s financial strength? Is it performing well given industry standards? How does it compare to its closest rival, HCA Healthcare? What information do you need in order to conduct such an analysis?
  • Given your review, how can it maximize shareholder value? What are focus areas for enhancing shareholder value for the long term? What short-term steps might be necessary for longer-term gains?
  • In your analysis you may choose to look at competitive data. You may calculate ratios to gain a true comparison.
  • After conducting your analysis, provide at least three recommendations to Maria that maximize shareholder value.

Deliverable Format

Create a report that tells the financial condition of this company. Your report should provide information on the following:

  • Analysis of the financial statements.
  • Evaluation of the true condition and valuation of the company.
  • Recommendation of actionable items for the company based on the financial analysis.

Financial Condition Analysis Report Requirements:

Remember that you’re preparing a professional document meant for executive leadership with limited time.

  • Title Page.
  • Executive Summary.
  • Company Background.
  • Overall Financial Analysis.
  • Financial Ratio Analysis.
  • Trend Analysis.
  • Competitive Comparative Analysis.
  • Recommendations.
  • Conclusion.
  • References.
  • Appendix (if you have additional data, reports, charts, et cetera, to support your analysis).

 

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