A financial plan for the next three (3) years Universal Health Service Inc.

Afinancial plan for the next three (3) years: UniversalHealth Service Inc.

Financialplan for the next three (3) years: UniversalHealth Service Inc.

UniversalHealth Service (UHS) Incorporation is a hospital management companybased in the United States and headquartered in Pennsylvania(Universal Health Services, 2015). It was founded in 1978 and offersamong them behavioral health care, acute care, and ambulatory healthcare services in its many subsidiaries. The service provider aims toprovide quality health-care that patients can refer to their familiesand friends, as can be seen in its mission statement (UniversalHealth Services, 2015). This paper will analyze the financial plan ofUniversal Health Services for the next three (3) years.

QuickRatio

Theratio that most financial analysts use to evaluate the financialcondition of UHS is the QuickRatio. Manyanalysts refer to this ratio as the acid test since it is the measureof a company’s immediate financial state. QuickRatio would be preferred by analysts because it measures the abilityof a company to meet its short-term needs using the current assets ithas at its disposal.

Itis calculated using the formula below

Quickratio = (Current assets – inventories) / Current liabilities

Fromthe formula above, it is clear that the ratio is a measure of thecash amount of liquid assets that a company holds for each of itscurrent liabilities. It is, therefore, conclusive that the higher theQuick Ratio, the better the company’s financial condition.

Table1: Financial ratios

Ratio

2012

2013

2014

Liquidity

Quick ratio

1.46

1.26

1.27

Current ratio

1.57

1.35

1.37

Companiesneed to meet short-term financial obligations if at all they are tomaintain their operations and expand in the future (Alexander,Miesing &amp Parsons, 2014). If at all a company cannot pay the debts it owes today then it cannever exist in the future. It is very imperative for not only thecompany’s management but also its investors, who have investedtheir hard earned money knowing how to evaluate a company’sshort-term financial health. The surest way of knowing if a companycan meet its financial obligations is through the use of liquidityratios.

Quickratio = (Current assets – inventories) / Current liabilities

CurrentRatio = Current assets / current liabilities

Table1, the Quick Ratio reduced from 1.46 in 2012 to 1.26 in 2013 and thenincreased to 1.27 in 2014, indicating that UHS is in a position tocover its current liabilities without the need of disposing itsinventory. Since UHS is not a retail outlet, and its primary focus ison service provision, these ratios indicate that it is not dependenton its inventory. The Current Ratio, on the other hand, declined from1.57 in 2012 to 1.35 in 2013 and again rose to 1.37 in 2014. Fromthese ratios, it is conclusive that UHS can meet its short-termfinancial obligations. Most of the current assets that UHS holds aretied up in either cash and equivalents, accounts receivables ordeferred tax assets, with the least being held up as inventories.UHS, therefore, has the means of meeting its financial obligations asthey come due. Nevertheless, the decline in the company’s liquidityas indicated by both the Quick and Current ratios may upset the someof the investors. To them, it may be an indication, that the companywill not be able to meet its short-term liabilities.

Table2

Ratio

2012

2013

2014

Profitability

Return on assets

0.060

0.062

0.063

Gross profit margin

39.09

39.24

41.22

Operating margin

6.37

7.01

6.76

Theprofitability trends at UPS can be analyzed using the following threeratios

Returnon assets = Net income / assets * 100

Grossprofit margin = Gross Profit/Net Sales * 100

Netprofit margin = Net Profit / Net Sales * 100

Table2, the return on assets increased from 0.06 in 2012 to 0.062 in 2013,and 0.063 in 2014, which means that the capacity of UHS to use assetsto increase investor’s wealth has been increasing over time. TheGross profit margin saw a steady increase from 39.09% in 2012 to39.24% in 2013, and 41.22% in 2014, a clear indication that UHS is ingood financial health. The Net profit margin of UHS increased from6.37% in 2012 to 7.01% in 2013, and later dropped to 6.76% in 2014,indicating a steady profit in after tax for every dollar that thebusiness gets from revenues.

Theprofitability trends of UHS are favorable both to the company and theemployees. Looking at the trends, it is clear that the company willcontinue to increase its income, and this will be a major gain to theinvestors. According to Alexander,Miesing &amp Parsons, (2014), employeesneed better pay and job security. Increased profitability ratio andnet income from$ 443,446,000 in 2012, to $ 510,733,000 in 2013, and $ 545,343,000 in2014 is a clear indication that UHS can be able to give its staffbetter packages. With continued profitability, UHS will also be in aposition to provide better and quality healthcare to its customers.

Table3

Ratio

2012

2013

2014

Efficiency

Assets turnover ratio

0.85

0.88

0.99

Assetturnover ratio, which is an efficiency ratio, is calculated using theformula below

Assetturnover = sales revenue / total assets

Table3, the asset turnover rose from 0.85 in 2012 to 0.88 in 2013, and0.99 in 2014, indicating how well UHS has utilized its assets togenerate revenue. From Table 2, we can see that profitability hasbeen on the rise owing to the increased asset turnover. Withincreased net income after tax ($443,400 in 2012, $510,700 in 2013,and $545,300 in 2014), owing to the efficient utilization ofresources, UPS has a bright future ahead. Universal Health Servicesgoing by the impressive performance will most likely be viable notonly in the next five (5) but ten (10) years.

References

Alexander,S., Miesing, P. &amp Parsons, L. (2014). Howimportant are stakeholder relationships?London: King’s College.

UniversalHealth Services Inc. (2015). Aboutus.Pennsylvania: UHS.

Appendix

Ratioanalysis

Liquidityratios

Year2012

Quickratio = (1,407,496 -99,000) / 894,058

=1.46

Year2013

Quickratio = (1,432,329 -101,781) / 1,059,888

=1.26

Year2014

Quickratio = (1,615,138 -108,115) / 1,182,827

=1.27

Year2012

Currentratio = 1,407,496 / 894,058

=1.57

Year2013

Currentratio = 1,432,329 / 1,059,888

=1.35

Year2014

Currentratio = 1,615,138 / 1,182,827

=1.37

Profitabilityratios

Year2012

Grossprofit margin = 2720900 / 6961400 * 100

=39.09%

Year2013

Grossprofit margin = 2858100 / 7283800 * 100

=39.24%

Year2014

Grossprofit margin = 3324200 / 8065300 * 100

=41.22%

Year2012

Netprofit margin = 443400 / 6961400 * 100

=6.37%

Year2013

Netprofit margin = 510700 / 7283800 * 100

=7.01%

Year2014

Netprofit margin = 545300 / 8065300 * 100

=6.76%

Efficiency

Assetsturnover ratio = Sales / total assets

Year2012

Assetsturnover ratio = 6,961,400 / 8,200,843

=0.85

Year2013

Assetsturnover ratio = 7,283,822 / 8,311,723

=0.875

=0.88

Year2014

Assetsturnover ratio = 8,065,326 / 8,974,443

=0.899

=0.99