annotated-MBA-FPX5014_CrystalLeslie_1-1.docx (1)

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Jun 19, 2024

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1 ABC Healthcare Corporation Shareholder Value Maximization Crystal Leslie Assessment 1 Financial Condition Analysis June 2 nd , 2024

2 Executive Summary Maria Gomez, founder and president of ABC Healthcare Corporation has asked for a review of financial documents and for recommendations on how to maximize shareholder value. Three recommendations will be provided. As a high-performing financial analyst manager, I will be providing Maria with this review and recommendations. Other companies that owns hospitals, ambulatory surgical centers, urgent care centers, and outpatient clinics have been reviewed. This will include our closest rival, HCA Healthcare. The two major ways that the market value was reviewed was with price/earnings ratios and price-to-book ratios. The focus of this review is from 2017 to 2019. The analysis reveals that we need to strength our market value. Company Background ABC Healthcare Corporation is in the healthcare industry. “ The healthcare sector consists of businesses that provide medical services, manufacture medical equipment or drugs, provide medical insurance, or otherwise facilitate the provision of healthcare to patients” ( Healthcare sector: Industries defined and key statistics 2021). The founder and president of the company is Maria Gomez. Our biggest rival is HCA Healthcare Inc, which is headquartered in Tennessee. ABC Healthcare Corp owns a large amount of emergency and surgical centers, making sure lives are saved every day. We are there to make sure people stay healthy during critical times. We make sure to review financial information and market value, so we make sure we are helping as many people as possible. This review will allow us to know how we can enhance shareholder value, making things better for everyone involved. Overall Financial Analysis This financial analysis of ABC Healthcare consists of a review of price-earnings ratio, market price, earnings per share, book value per share, and price to book ratio. Each of these values can be very important when evaluation market value and financial health. For example, price-earnings ratio is good for a quick evaluation of a stock. It tells us if a company is overvalued or undervalued in the market. The earnings per share went down from 2017 to 2019, causing the Price/Earnings Ratio to go up. “The market price is used to calculate consumer and economic surplus” (Mitchell, 2024). The market price stayed the same in the years under review. Book value is a measurement how much a company would be worth if a company sold all of their assets and paid back all liabilities. The Book Value per Share went down from 2017 to 2019 causing the Price to Book ratio to go up. Price to book ratio tells how much shareholders are paying in stock price relevant to the net value of the companies assets. Overall, it would appear that HCA Healthcare has been financial health. Financial Ratio Analysis, Trend Analysis, and Competitive Comparative Analysis will all be discussed further.

3 Financial Ratio Analysis “Financial ratio analysis is the technique of comparing the relationship (or ratio) between two or more items of financial data from a company's financial statements” ( What is financial ratio analysis? 2021). The CFO for ABC Healthcare Corporation assessed the market value by reviewing its price/earnings and price-to-book ratios for 2017 to 2019. The formula to find the price/earnings ratio is: price per share/earnings per share=pe ratio. When calculating the price/earnings ratio, the CFO took the earnings per share and divided that into the market value. The 2019 investors were willing to pay $12.10 for $1 of earnings. To have a better understanding of Price/Earnings Ratio, 10 or lower could be considered a low P/E ratio, meaning it is cheap. A P/E ratio of 50 or more is high, meaning that it is expensive compared to the profit that it makes. From 2017 to 2019, the P/E ratio went up but can still be considered a low P/E ratio. It shows the investors are willing to pay more. This price/earnings ratio chart was provided by the CFO: The Price to Book ratio is Price per Share divided by Book Value per Share. Therefore, first Book Value would need to be calculated which is assets minus liabilities and than divided by shares outstanding. The price to book ratio shows that in 2019 investors were willing to pay $0.42 for $1 of book value equity. In regards to Price to Book ratio, small is cheap and high is not good value. In this case, it is cheap but it is less than 1. If P/B is less than 1, the stock is trading less than the book value of the company. This means the assets are worth more than stock. This Price to Book ratio chart was provided by the CFO:

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4 Trend Analysis “Trend Analysis is arguably the most important area of technical analysis and is key to determining the overall direction of a security” ( Trend analysis 2024). Trend Analysis is often analyzing market price, which there is no upward or downward trend in this case. The market price consistently stayed at 83.62 from 2017 to 2019. However, we can look at the trends of the Earnings Per Share, Price/Earnings Ratio, Book Value per Share, and Price to Book Ratio. The Earnings per Share have been consistently going down from 2017 to 2019. It went down 1.28 from 2017 to 2018. It went down 0.96 from 2018 to 2019. Using this trend, we can assume that it will also go down from 2019 to 2020. Using the trends, we can predict that it may go down 0.64. This downward trend is causing an upward trend in Price/Earnings Ratio. It went from 9.14 in 2017 to 10.63 in 2018. Finally in 2019, it went up to 12.10. It can be predicted that it will be 13.55 in 2020. This shows the value in the company is increasing. The trend for Book Value per Share has been a consistent Downward trend in 2017 to 2019. It went from 226 to 209.05 to 199.1. It can be predicted that it will go down to at least 196.15 in 2020. This downward trend caused an upward trend in Price to Book Ratio. It increased by 0.03 from 2017 to 2018. It went up 0.02 from 2018 to 2019. It can be predicted to at least go up 0.01 from 2019 to 2020. It is slowly pushing towards the book value of the company. Competitive Comparative Analysis This Competitive Comparative Analysis is comparing ABC Healthcare Corporation and HCA Healthcare Inc. HCA Healthcare has “86 hospitals and approximately 2,400 sites of care in 20 states and the United Kingdom. In addition to hospitals, sites of care include surgery centers, freestanding emergency rooms, urgent care clinics, diagnostic and imaging centers, walk-in clinics and physician clinics” ( Who we are 2024). Unlike ABC Healthcare Corporation that stayed the same price, HCA Healthcare’s market price has been increasing. On January 3 rd , 2017 their adjusted closing price was 70.13, 81.98 on January 3 rd , 2018, and 113.85 on January 3 rd , 2019. HCA Healthcare’s Price/Earnings Ratio had variance from 2017 to 2019. There were spikes up and down. In 2017, the P/E Ratio was 11.37. The ratio went down to 10.66 in 2018 and then back up to 13.34 in 2019. This is difference than ABC Healthcare continuous upward trend. The Price to Book Ratio for HCA Healthcare showed a downward trend. From 2017 to 2019, they had a negative Price to Book ratio. In 2017 the P/B Ratio was -5.77 and it decreased to -7.26 in 2018. Finally, it decreased to - 25.02 in 2019. It can be noted that both companies have a P/B ratio less than one. Both

5 stocks are trading lower than their book value. HCA Healthcare is trading more below their value than ABC Healthcare is. Overall, it would appear that HCA Healthcare has been financial health, with their increasing market price and earnings per share. They also for the most part are closer to industry averages. However, their stock does seem to be more volatile, therefore also more risky. There price/earnings ratio is also higher indicating that the stock is more expensive than the profit. Recommendations Currently ABC Healthcare’s Market value is not where we would like it to be. We do not stand up to industry standards. The recommendations that I would make are as follows: 1. Minimize Debt It is suggested that we find ways to decrease debt so we can strengthen our book value. This may look like paying off loans or focusing more on tangible assets. We need to focus on assets and activities that maximize value. 2. Invest and Expand The next recommendation is to evaluate areas in the healthcare industry that are high growth areas. We should invest in these areas and even expand when possible. Artificial Intelligence has began to become an advanced feature in the healthcare industry. 3. Increase Profit Margin Finally, it is recommended to increase the profit margin. This will increase market value for shareholders by making sure to show them our activities can make money. “Focusing efforts on the products or services with the highest profit margins while reducing the company’s efforts on low-margin business lines is crucial to increasing cash flows” (Coit, 2021). Conclusion ABC Healthcare has it’s strength and weaknesses. We do seem stable and our positive investor support is increasing. Some of our financial strategies could be improved to keep up with industry averages. It is suggested to minimize debt, invest, expand, and increase profit margins.

6 References Coit, D. E. (2021, April 6). How you can increase the value of Your Healthcare Company . VERTESSPress. https://vertesspress.com/how-you-can-increase-the-value-of-your- healthcare-company/ GoCardless. (2021, January 13). What is financial ratio analysis? . GoCardless. https://gocardless.com/en-us/guides/posts/what-is-financial-ratio- analysis/#:~:text=Financial%20ratio%20analysis%20is%20the,between%20different%20c ompanies%20or%20industries. Investopedia. (2021, October 21). Healthcare sector: Industries defined and key statistics . Investopedia. https://www.investopedia.com/terms/h/health_care_sector.asp Mitchell, C. (2024, April 26). Market price: Definition, meaning, how to determine, and example . Investopedia. https://www.investopedia.com/terms/m/market- price.asp#:~:text=The%20market%20price%20is%20used,good%2C%20or%20the%20ma rket%20price. Trend analysis . TradingView. (2024). https://www.tradingview.com/ideas/trendanalysis/ Who we are . HCA Healthcare. (2024). https://hcahealthcare.com/about/

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