HRM-FPX5014_VitosGarciaJavierAndres_Assessment1_1

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1 Financial Condition Analysis (Javier A Vitos Garcia) Capella University Keith Wade Dec 11, 2023 MBA-FPX5014

Financial Condition Analysis 2 Executive Summary To attract investors, a company must maintain solid financial health, as investors seek to place their capital in financially stable companies that generate returns. Therefore, the number of people willing to invest will largely depend on the financial health of the company. The financial analysis will focus on reviewing ABC's financial statements for the period between 2017 and 2019. Using ratios such as book-to-price and price-to-earnings ratios, recommendations will be provided to maximize shareholder value. Additionally, a comparison will be made with HCA Healthcare, one of the company's main competitors. Background of the Company ABC Healthcare Corporation, commonly referred to as "ABC," operates across multiple sites within the United States. The company's expansive network includes 27,000 locations encompassing urgent care facilities, hospitals, and surgical centers. ABC is supported by a workforce of approximately 180,000 healthcare professionals and support staff. Throughout its existence, ABC has consistently distinguished itself, earning numerous awards and accolades. The exceptional leadership provided by Maria Gomez, serving as the company's president, has been instrumental in steering ABC towards success. Ms. Gomez maintains a steadfast commitment to enhancing shareholder value, actively seeking opportunities for company improvement, and attracting new investors to facilitate the continuous expansion of ABC. Comprehensive Financial Analysis The Chief Finance Officer overseeing ABC's Finance Department conducted a thorough examination of market value through the scrutiny of the price-earnings ratio. This ratio, calculated by dividing the market price by earnings, serves as a key indicator of a stock's market value relative to the company's profitability. In 2019, investors demonstrated a willingness to pay

Financial Condition Analysis 3 $12.10 for every dollar of earnings, reflecting an increase from $10.63 in 2018 and $9.14 in 2017. According to Hayes (2022), “the Forward Price/Earnings and Trailing Price/Earnings are widely used ratios in this context. The former focuses on the price investors are willing to pay for future earnings, while the latter centers on past earnings performance” (Hayes;2022). In assessing ABC, the forward Price/Earnings ratio is employed to evaluate the corporation's financial health. The analysis in Appendix #1 reveals a consistent increase in ABC's Price/Earnings ratio from 2017 to 2019, signaling positive growth and potentially attracting more investors. “Another significant metric is the price-to-book ratio (P/B ratio), used to compare market capitalization to book value. This ratio is derived by dividing the stock price per share by the book value per share” (Fernando; 2022), a rising price-to-book ratio suggests growth, contrary to the perception that a lower ratio implies undervaluation. In the case of ABC, despite a stable market price at $83.62 from 2017 to 2019, the price-to-book ratio has shown a consistent increase, rising from $0.37 per $1 in 2017 to $1 per $1 in 2019. This upward trend indicates sustained growth, a favorable prospect for investors seeking stability and constant prices. In conclusion, the meticulous analysis of ABC's financial metrics, including the Price/Earnings and price-to-book ratios, portrays a positive trajectory. The company's commitment to increasing shareholder value and attracting investors is evident in its steady financial growth, positioning ABC as an appealing choice for potential investors. Financial Ratio Analysis According to Carlson (2020), “financial ratio analysis serves as a quantitative tool for business managers to gain valuable insights into a firm's profitability, solvency, efficiency,

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Financial Condition Analysis 4 liquidity, coverage, and market value” (Carlson; 2020). This analysis involves scrutinizing various metrics over a specific period and comparing them with industry peers. In the healthcare sector, the average Price/Earnings ratio typically ranges between 12 and 14. While ABC's 2019 Price/Earnings ratio of 12.10 is slightly below this average, the steady increase from 9.14 in 2017 indicates robust growth potential. In comparison, the main competitor, HCA Healthcare, recorded a ratio of 14.50 in 2019, positioning ABC favorably within the industry. Trend Analysis Trend analysis, as described by Hayes, “uses historical data to forecast market sentiment and predict future stock price movements” (Hayes; 2021). The Price/Earnings and price-to-book value ratios for ABC from 2017 to 2019 suggest a stable market price, contrasting with HCA's significant year-over-year market price increase. While a negative price-to-book ratio for ABC may imply undervaluation, it does not necessarily reflect the company's true worth. It is crucial to note that a low Price/Earnings ratio does not always indicate undervaluation. Competitive Comparative Analysis A comparison of ABC and HCA reveals that HCA holds a stronger financial profile. Both companies have growth potential but need to focus on securing a prominent market position and achieving results comparable to other industry leaders. Recommendations My initial suggestion for ABC is to concentrate on expanding the company beyond the borders of the United States, with Canada and the United Gold East identified as promising regions due to their substantial growth rates and governance systems similar to that of the United States. Entering these markets would likely increase the company's value and, consequently, its profits. To facilitate further expansion, a shift towards a more customer-centric approach in

Financial Condition Analysis 5 patient and staff treatment is recommended to counteract rumors surrounding inpatient operations. Providing ongoing training and fostering greater transparency with employees will contribute to mitigating negative comments and emotions. Additionally, improving awareness of government policy changes and increased restrictions is essential, and hiring the right personnel can alleviate the associated challenges. As highlighted by Ku (2022), “the utilization of social media platforms such as LinkedIn, Twitter, YouTube, Facebook, Instagram, and even emerging platforms like TikTok can enable ABC to connect and engage with potential customers effectively” (Ku; 2022). Increased investment in social media would provide insights into how patients and stakeholders perceive ABC's services, allowing for timely responses to public comments and necessary improvements. Social networking sites may also serve as platforms for testimonials from previous patients, showcasing the excellent service provided by ABC. In the pursuit of global expansion, ABC must invest in cutting-edge healthcare technologies to meet evolving data collection needs. Emulating the data collection model employed by its main competitor, HCA, could result in improved patient care and financial benefits. Continuous data collection is imperative, and while adopting a new cloud data collection system, ABC should retain electronic health record storage for its complementary advantages. Conclusion Stocks represent ownership in companies, and investors seek access to a company's finances to determine continued investment. This analysis, comparing ABC to its competitor HCA, suggests constant improvement in ABC's finances since 2017, presenting a potential

Financial Condition Analysis 6 opportunity for investors. The recommendations provided aim to enhance ABC's credibility and align with the company's growth goals under President Maria Gomez's leadership.

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Financial Condition Analysis 7 Reference Carlson, Rosemary. (2020). What is Financial Ratio analysis?. Retrieved from: https://www.thebalancesmb.com/what-is-financial-ratio-analysis-393186 Fernando, Jason. (2022). Price-to-Book (P/B) Ratio. Retrived from: https://www.investopedia.com/terms/p/price-to-bookratio.asp Ku, Daniel. (2022). The importance of Social Media Marketing in 2022. Retrived from: https://www.postbeyond.com/blog/social-media-marketing-importance/#:~:text=Social %20media%20allows%20marketers%20to,marketers%20can%20engage%20their %20audience. Hayes, Adam. (2021). Trend Analysis. Retrived from: https://www.investopedia.com/terms/t/trendanalysis.asp Hayes, Adam. (2022). Forward Price-to-Earning (Forward P/E). Retrieved from: https://www.investopedia.com/terms/f/forwardpe.asp

Financial Condition Analysis 8 Appendix

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