Financial Statement Analysis Universal Health Service Inc.

FinancialStatement Analysis: Universal Health Service Inc.

FinancialStatement Analysis: Universal Health Service Inc.

UniversalHealth Service (UHS) Incorporation is a U.S. based hospitalmanagement company. UHS was founded in the year 1978 and itsheadquarters is located in Pennsylvania (Universal Health Services,2015). UHS offers behavioral health care, acute care, and ambulatoryhealth care services through its numerous subsidiaries. From itsmission statement, UHS seeks to provide quality care that patientscan recommend to their families and produce long-term returns forinvestors (UHS, 2015). This paper will analyze the financialperformance of UHS for three financial years, including 2012, 2013,and 2014.

Financialhealth from the perspective of different stakeholders

Table1: Financial ratios

Ratio

2012

2013

2014

Profitability

Return on assets

0.060

0.062

0.063

Liquidity

Quick ratio

1.46

1.26

1.27

Efficiency

Assets turnover ratio

0.85

0.88

0.99

Investorsare interested in the profitability of the company and efficiencywith which it utilizes the assets to increase their wealth(Alexander, Miesing &amp Parsons, 2014). From Table 1, the return onassets increased from 0.06 in 2012, to 0.062 in 2013, and 0.063 in2014, which means that the capacity of UHS to use assets to increaseinvestor’s wealth has been increasing time. However, investors maynot be impressed by a decline in the liquidity of UHS as indicated bythe quick ratio since it indicates that the organization willexperience challenges in meeting its short-term liabilities. UHS hasbeen increasing the proportion of equity finance in its financingstructure. Shareholders` equity increased from 34.06 % in 2012, to40.15 % in 2013, and 42.77 % in 2014. This suggests that UHS has beenmoving away from risky sources of capital (such as debt) to safersources. This is impressive to the shareholders who are interested inseeing that the assets of their company are protected. In addition,UHS’s asset turnover increased from 0.85 in 2012 to 0.88 in 2013and 0.99 in 2014. These improvements would also impress themanagement, whose interest is to create wealth for the shareholders.

Employeesare interested in job security and a better pay (Alexander, Miesing &ampParsons, 2014). The continuous increase in the profitability ratioand the net income from $ 443,446,000 in 2012, to $ 510,733,000 in2013, and $ 545,343,000 in 2014 is impressive to employees since thecompany will be able to increase their compensation. Continuousprofitability is also an indication of a safer going concern whichimplies that employees’ jobs are secured and the hospital willcontinue delivering quality services to customers. Moreover, anincrease in profitability means more taxes to the government.

Industrytrend

Thestiff competition is among the key current trends that might affectthe financial performance of the firms operating in the health careindustry. Different health care facilities are competing to attractmore patients to consume their services (Gaynor, 2000). Health careorganizations are being faced with stiff competition that has limitedtheir capacity to meet desired profitability levels. The stiffcompetition has reduced the probability of the survival of theorganizations in terms of customer retention, return on investment,establishment of the brand image, meeting quality thresholds, andretaining the market share. UHS is not an exemption, which means thatthe stiff competition will likely reduce its financial performance.Competition is an external factor, which means that the CFO haslittle to do to avoid it. However, the CFO can protect financialperformance of UHS by reducing the cost of inventory. This can beachieved by negotiating with suppliers and inviting bidders in orderto ensure that only suppliers who offer goods at the least price wintenders (Lichtenberger, Neal &amp Ungerman, 2013). The acquisitionof supplies at a cheaper price will help UHS to deliver health careservices at a cheaper price compared to competitors. This will helpUHS in retaining its market share and protecting its profitability inspite of the stiff competition.

Improvingfinancial performance

TheCFO can improve the profitability or the financial performance of UHSby exploiting new service lines that are more profitable. Currently,UHS offers behavioral health care, acute care, and ambulatory healthcare services (UHS, 2015), which indicates that there is still a widerange of health care services that the hospital can exploit toenhance its financial performance. For example, the demand forelderly health care services has been increasing tremendously sincemany baby boomers are getting into the old age stage (MclLwain,2012). Therefore, investing in health care services that focus onolder adults implies that UHS will increase the number of the targetcustomers. Most importantly, older adults are more vulnerable toillnesses compared to the general population, which implies they willconsume more services than the younger population.

Theprocess of implementing new service lines should start with thescreening the health care industry and the environment in order toidentify the available opportunities. The CFO should then inform thetop executives about these opportunities and ask for the go ahead toimplement them. Once permitted, the CFO should liaise with othermanagers (such as the project manager) to determine the amount ofresources required to implement the new service lines. The CFO shouldbudget for each profitable service line and have it commissionedimmediately. The profitability and performance of each service lineshould then be evaluated regularly to determine if the desiredtargets are being achieved.

Conclusion

UniversalHealth Service has demonstrated a reasonable improvement in itsfinancial performance. Return on assets and assets turnover increasedcontinuously from 2012 t0 2014, which indicates that the company’sefficiency in utilizing the available assets to increase theshareholder wealth is likely to continue improving. The continuousincrease in the profitability and efficiency of the company is alsoimpressive to the management and employees who are interested inseeing the progressive of the company. The CFO can protect thecompany from stiff competition by reducing the cost of inventory,which will in turn help UHS deliver health care at a lower costcompared to competitors.

References

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

Gaynor,M. (2000). Antitrustand competition in health care market.Pittsburg, PA: Carnegie Mellon University.

Lichtenberger,S., Neal, E., &amp Ungerman, D. (2013). Howsourcing excellence can lower hospital costs.Harare: Health International.

MclLwain,K. (2012). Housingin America: Baby boomers turn 65.Washington, DC: Urban Land Institute.

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

Appendix

Ratioanalysis

Profitability:

Returnon assets = Net income / average total assets

Year2012

Averagetotal assets = (7,665,245 + 8,200,843) / 2

=$ 7,933,044

ROA= 443,446 / 7,933,044

=0.056

=0.06

Year2013

Averageassets = (8,311,723 + 8,200,843) / 2

=$ 8,256,283

ROA= 510,733 / 8,256,283

=0.062

Year2014

Averageassets = (8,974,443 + 8,311,723) / 2

=8,643,083

ROA= 545,343 / 8,643,083

=0.063

Liquidity:

Quickratio = (current assets – inventory) / current liabilities

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

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

Financialstructure

Year2012

Equity= 2,713,345,000 (34.06 %)

Short-termliabilities = 894,058,000 (11.19 %)

Long-termliabilities = 4,359,137,000 (54.58 %)

Year2013

Equity= 3,249,979,000 (40.15 %)

Short-termliabilities = 1,059,888,000 (13.10 %)

Long-termliabilities = 3,783,747,000 (46.75 %)

Year2014

Equity= 3,735,946,000 (42.77 %)

Short-termliabilities = 1,182,827,000 (13.54 %)

Long-termliabilities = 3,816,118,000 (43.69 %)