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FPX5014
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Finance
Date
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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Recommended textbooks for you
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