Financial Statement Analysis Of Logistics Service Providers Essay

Questions:

1. Evaluation of financial condition of Universal Health Services on the basis of financial ratio?

2. Speculation of organization’s ability to meet its financial obligations and to provide rationale for the same?

3. Determination of the profitability on the basis of ratio analysis and providing the rationale for the same?

4. Prediction on the company whether it can be viable till 5 years based on the ratio analysis?

Answers:

Introduction

Universal Health services are a health care organization that are responsible to render healthcare treatment to its patient and is also recognized globally. Financial statement analysis is beneficial to every company because it helps to understand the company’s financial position and current status of the business activities (De Franco et al. 2011). Future business practices can be predicted with the financial statement analysis because it helps to know the health status of the various business organizations in a consolidated manner.

1. Evaluation of financial condition of Universal Health Services on the basis of financial ratio

It can be evaluated easily with the help of financial statement that includes net revenue to be $8065 million for the year 2014 that means it us higher than the previous year. This organization even got higher in the profit margin that serves beneficial from the growth prospective (Fridson & Alvarez, 2011) .On the basis of financial ratio, it has been noticed that earnings per share also showed an increase in trend with 5.21 percent that means shares are quoted at higher prices that the company can easily sell off in times of need.

The current ratio of this company is 1.11 and the ideal ratio is 2: 1 that implies that company is not able to meet its short obligations with the available assets and liabilities. Debt equity ratio of this organization is 0.86 that means it can meet its debt in a shorter period of time that is much higher than the previous year (Henry & Robinson, 2015). The number of times the stock can retain in the business is 8.53 that have been marked as lower as compared with the previous year. This directly gave a brief idea that this organization fails to control in the management of inventory in an efficient manner that may have an adverse impact in the smooth functioning of the business enterprise.

2. Speculation of organization’s ability to meet its financial obligations and to provide rationale for the same

This organization can easily meet its financial obligations it in the near future because all the aspect in the financial statements are showing a growth in the trend from the previous year be it the case of profit margin, net income or the debt equity ratio. The working capital is the difference between the current assets and current liabilities was also higher that means the company can effectively meet its day to day expenses that are required for the smooth functioning of the business enterprise (Hofmann & Lampe, 2013). Therefore, it can be speculated that the shareholders will be interested in investing their money in the business because current status of the business is showing a positive impact as far as profitability is concerned from the future point of view. The amount of sales has increased from the previous year that directly means the company is going to have profit in the long that will be beneficial on an overall basis for the growth.

The organization should focus mainly on meeting the working capital requirement that is the difference between assets as well as liabilities because funds are required in the day to day running of the business enterprise. Inventory is needed to be properly stocked that means there should be neither surplus nor deficit in the production pattern of the organization. Patients should be properly taken care off because their health is more important factor. Universal Health Services should invest money in launching of new machinery with the updated technology to provide the patient the best of its services. Revenue expenditure has to be controlled because that money is required for the day to day running of the organization in the most efficient manner.

3. Determination of the profitability on the basis of ratio analysis and providing the rationale for the same

On the basis of financial ratios, it is determined that the profitability pattern of Universal Health Services is increasing that is making the employees happy as it is going for further expansion, leading to more employment opportunities (Louis et al.2014). With the increased profitability, the firm can very well engage its money in getting the updated technology for the treatment that will help the patient to get cure of most of the diseases possible that was otherwise not possible (Persons,2011). As the business increased in profitability, the salaries and wages of the employees will also get hiked up that will make the employees more encouraged to work more in the revenue generation.

Investors may be gained from this company because the debt equity ratio is on the lower side that reflects that capital invested proves to be beneficial to the entire firm strategy. The further aspect to be determined is the share prices that are increasing at a rate of 142.83 in the 2014 (Beaver et al.,2011). Therefore, it can be seen that return on the shareholder’s equity is lower as compared to the previous year that means there is a chance of falling of the share prices in the near future. Universal Health services had some fraudulent claims regarding the patients that needs to be reduced so that to gain in the goodwill. It is better to run the business ethically and be good in the eyes of the shareholders because that will help in maintaining the growth of performance for the next years.

4. Prediction on the company whether it can be viable till 5 years based on the ratio analysis

From the financial ratios, it can be predicted that the Universal Health services needs improvement is required in the pricing structure of stock and its correspondence inventory turnover ratio. During 5 years, this organization should work upon the meeting short term needs and that can be only possible if they increase the working capital that means balance assets as well as liabilities (Richard, 2014). Long term performance of this company can be judged if they meet the requirements of the shareholders because their money needs to be invested in the business. Better forecasting techniques if implemented, then there will be variances on the term of financial performance in the next 5 years (Minnis, 2011).

The organization need to focus more on the enhancement of safety stock in the course of inventory system because the number of times the stock has been used gets reduced that affect the entire production level in maintaining the stock (Ormiston & Fraser ,2013). In the next 5 years, it can be seen that there will be further increase in the sales revenue as well as capital employed in the most effective manner. Another way out that can bring change in the next 5 years can be if the company can cut down in their operating expenses and that will automatically make it to gain in the profit margin.

Conclusion

At the end of the study, it can be easily noticed financial analysis play an important role that helps in the designing of the strategic objectives within an organization. Entire study focused on how Universal Health Services can improve in the next 5 years related to their financial performance. Several strategies should be implemented such as adequate division of short term as long term requirements. Another idea that this company should focus mainly will be use of FIFO (First in First Out) method because by this they can easily clear their percentage on inventory.

Reference List

Fridson, M. S., & Alvarez, F. (2011). Financial statement analysis: a practitioner's guide (Vol. 597). John Wiley & Sons.

Beaver, W. H., Correia, M., & McNichols, M. (2011). Financial statement analysis and the prediction of financial distress. Now Publishers Inc.

Hofmann, E., & Lampe, K. (2013). Financial statement analysis of logistics service providers: ways of enhancing performance. International Journal of Physical Distribution & Logistics Management, 43(4), 321-342.

Henry, E., & Robinson, T. R. (2015). Chapter 1. Financial Statement Analysis: An Introduction. CFA Institute Investment Books, 2015(2), 1-35.

De Franco, G., Kothari, S. P., & Verdi, R. S. (2011). The benefits of financial statement comparability. Journal of Accounting Research, 49(4), 895-931.

Louis, H., Lys, T. Z., & Sun, A. X. (2014). Conservatism, analyst ability, and forecast error: evidence on financial statement users' ability to account for conservatism. Available at SSRN 1031981.

Richard, P. (2014). The Role of the Accounting Rate of Return in Financial Statement Analysis. The Continuing Debate Over Depreciation, Capital and Income (RLE Accounting), 67(2), 235.

Ormiston, A., & Fraser, L. M. (2013). Understanding financial statements. Pearson Education.

Minnis, M. (2011). The value of financial statement verification in debt financing: Evidence from private US firms. Journal of Accounting Research,49(2), 457-506.

Persons, O. S. (2011). Using financial statement data to identify factors associated with fraudulent financial reporting. Journal of Applied Business Research (JABR), 11(3), 38-46.

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