Financial Statement Analysis Coursework Example

Financial Statement Analysis
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UHS’ Financial Statements Analysis
Universal Health Services Inc. is one of the biggest and highly respected healthcare management companies around the United States. Founded in 1979, the company has been in operation for over 40 years reflecting a superior track of management (UHS (2015). UHS’ primarily focuses on meeting patients’ healthcare demands across thousands of local communities they call home. The organization works through its facilities including over 240 intense care clinics, ambulatory centers and behavioral health facilities in the United States, the US Virgin Islands, Puerto Rico and the United Kingdom. According to UHS (2015), United Healthcare Service, Inc.’s steady growth trends correspond specifically to their consistent focus on providing the best level of care to their esteemed patients resulting in their high preference profile by physicians who want to make referrals and patients. This paper specifically provides an inner look into the financial image of this renowned company, Universal Health Services Inc.
Ratio Analysis
As a new chief financial officer of UHS, understanding its financial condition is paramount, especially, when it comes to financial planning and speculation for further investments or redemption of liabilities. To undertake this process, liquidity, profitability, and leverage financial ratios can be useful. The rationale for choosing these is based on the various functions and significance they hold in financial analysis.

Liquidity ratios determine how cash relates to other current assets to current liabilities, thus, providing can provide a quick measure of the company’s liquidity (Tracy, 2012). For this task, two liquidity ratio analysis of UHS will be performed.
Current Asset ratio, given by
Current Assets (C.ACurrent liabilities(C.L) 1,718,3041,100,406=1.562The current ratio of 1.562 is relatively high and indicates that the company is liquid and can pay its bills as they fall due.
Acid Test Ratio, given by Liquid Assets (L.ACurrent liabilities(C.L)(1,302,429+61,228)(1,100,406)=1.239
Based on the ratio, there UHS more liquid assets than the current liability. Compared to the industry average which is 1.5, 12% is a little lower.
Leverage or capital structure ratios, on the other hands, can be useful in establishing UHS’ long-term financial strength. For this task, UHS’ Debt to Equity ratio will be performed since measure the ratio helps determine the potential claims of the owners and creditors of the firm asset (Tracy, 2012). 
Debt-Equity ratio =Longterm DebtShareholders Equity=3,387,3034,309,161=0.786 or 78.6%This implies that for every one dollar equity, the company has raised 0.786 cents long-term debt or the long-term debt is 78.6% of the shareholder’s equity which mean owners of Universal Healthcare Services Inc. value the stake of creditors highly. In synthesis, UHS can be said to have an adequately strong long-term financial health.
Further, to determine the viability of the company’s future operations, it is important to carry a profitability analysis, using the financial profitability ratios in relation to income and investments.
Ratio Analysis Interpretation
Net Profit Margin Net Income after TaxRevenues680,5289,043,451=0.075 or 7.5%The company has a net profit margin of 7.5% which is satisfactory and indicative of efficiency in management and administration. The margin also indicates that UHS is profitable and able to withstand adverse economic conditions that may impede its future stay in business.
Operating Ratio
Operating ExpensesRevenues7,784,056 9,043,451=0.86 or 86%This means operating charges consume 86% of the UHS’ service revenues, and only 14% is left over to cater for dividends, income taxes and firm’s need to retain profits. This ratio is very high and unfavorable for future existence.
Based on the trend analysis, which reveals that UHS’ operating charges has constantly been increasing every year with an increase in revenues, operating ratio often remains constant, hinting that organization is likely to remain viable for more than five years to come. Again, considering the profit analysis, UHS always record a constant increase in the profit margin every year. For instance, in 2013 the net profit margin was $ 510,733, in 2014 the margin rose to $545,343 which is again below the 2015 profit margin of $ 680,528 ((UHS, 2015). With this constant rise in profitability coupled with the continually improving liquidity levels, UHS viability in next five years is undoubted. They make awesome profits every year and are capable of settling their current obligations as they come due.
Insight into the financial health of UHS
Based on the ratio analysis, one the greatest insights into the financial health of UHS is the huge proportion of Debt Capital in its capital structure. Long-term debt alone accounts for over 78% percent of the shareholder’s equity implying that if the company were to be dissolved today, nearly 80% of the total capital would go into settling the debts. Shareholders and employees would then remain worried of their shares. For investors, this would be an unsure bet since they are likely to doubt return on their investments. Reasonably, if the company were in an awesome financial health, long-term debts would not account for a bigger part of its capital.
The Current Industry Trend
Universal Health Services Inc. is one the key players in the U.S. healthcare industry. Like other industries, the healthcare industry is never static. Trends changes every day and night based on the present economic, political, social and legal environment. Currently, there are three major trends in the industry that are likely to affect the performance of many hospitals and health facilities in the United States ((HHCSI, 2017).  One of them is the constantly Rising Number of Uninsured Patients. Another one is the Shortage of Qualified Nurses and Physicians and, of course, increased competition among health facilities.
However, of greatest concern to the Universal Healthcare Services Inc. is the constant rise in the number of Uninsured Patients which increases costs across the healthcare industry and the care continuum. According to UHS (2013), the company gets the greater part of its incomes from its doctor’s facility offices, while its behavioral health service fragments represent the vast majority of the rest of. Since doctor’s facilities (hospitals) are legitimately required to give care to any individual who needs it, regardless of whether they have medical cover or not, UHS confronts high costs (particularly bad debt expense) because of this trend. Based on personal understanding in regards to UHS (2013), uninsured patients’ proportion makes up nearly 18% of the company’s incomes, higher than numerous competitors; United Health Services Inc. stands to lose more than its potential business competitors from this pattern. In the meantime, the proportion of uninsured patients has dropped in the previous couple of years, which mitigates the potential negative effect of expanding bad debt cost on the firm.
Key Strategy
The role of a CFO is to manage the financial risks of an organization. This includes financial planning, reporting to higher management and ensuring records are well kept in the books of accounts. As a CFO, the uninsured patients segment of patients poses a major financial risk to UHS. The segment is a key cost driver especially in relation to bad debts expense. Since it is a legal requirement that they have to be attended to, regardless of their medical cover, the company should consider differential costing of medical services, so that patients with medical cover are treated a lower cost than those who are not insured. Eventually, this will minimize cost increasing revenues on one part and by encouraging the insured patients to seek medical cover on the other part.

References
Home Health Care Services Industry (HHCSI). (2017). United States Home Health Care Services Industry Report, 1-195.
Tracy, A. (2012). Ratio Analysis Fundamentals: How 17 Financial Ratios Can Allow You to Analyze Any Business on the Planet. Ratio Analysis. net.
Universal Health Services (UHS). (2015). Annual Reports. Retrieved March 02, 2017, from http://ir.uhsinc.com/phoenix.zhtml?c=105817&p=irol-reportsAnnual. Consolidated financial statements.
Universal Health Services, Inc., SWOT Analysis. (2013). Universal Health Services, Inc. SWOT Analysis, 1-7.