# Maria Gomez is founder and president of ABC Healthcare Corporation, a company that owns hospitals, ambulatory surgical centers, urgent care centers, and outpatient clinics. She has called on you to

Assessment 1

Financial Condition Analysis

InstructionsResourcesActivityAttempt 1availableAttempt 2Attempt 3

InstructionsResourcesActivityAttempt 1 availableAttempt 2Attempt 3

Create a 4–6 page report that analyzes financial ratios for a company, uses the data to tell the financial story of that company, and concludes with a recommendation on whether the company would be a viable partner based on its financial condition.

Collapse All

Introduction

It’s essential for senior management to know the financial condition of an organization in order to make strategic decisions. In this assessment, you will apply the financial management skills learned thus far.

·        Tell the financial story based on financial statements.

·        Conduct a financial analysis and identify focus areas for enhancing shareholder value.

·        Interpret ratio computations that are meaningful and inform business decisions and strategies.

·        Make three recommendations that maximize shareholder value.

Scenario

Maria Gomez is founder and president of ABC Healthcare Corporation, a company that owns hospitals, ambulatory surgical centers, urgent care centers, and outpatient clinics. She has called on you to review various financial documents and to make recommendations to maximize shareholder value.

You are one of Maria’s high-performing financial analyst managers at ABC Healthcare Corporation and she trusts your work and leadership.

Requirements

Here is what your report should provide for Maria:

·        A summary of the financial strength of the company through your analysis of the price/earnings and price/book ratios.

The CFO for ABC Healthcare Corporation assessed the market value by reviewing its price/earnings ratios. The price/earnings ratio determines the market value of a stock as compared to the company’s earnings. The price/earnings ratios are listed in the chart below. To calculate the price/earnings ratio, the CFO took the earnings per share and divided that into the market value. As an example, this means that in 2023 investors were willing to pay \$12.10 for \$1 of earnings.

Price/Earnings Ratio

2023

2022

2021

Market Price

83.62

81.62

80.02

Earnings Per Share

6.91

7.87

9.15

Price/Earnings Ratio

12.10

10.63

9.14

To further assess market value, the CFO looked at book value per share. The book value per share ratio is the per share value of a company in terms of the equity available to stockholders. The book values per share over the past three years are listed in the chart below:

Price/Ratio Ratio

2023

2022

2021

Market Price

83.62

81.62

80.02

Book Value per Share

199.1

209.05

226

Price to Book Ratio

.42

.40

.37

The price-to-book ratio (P/B ratio) compares a firm’s market capitalization to its book value. It’s calculated by dividing the company’s stock price per share by book value per share. Here, for fiscal year 2023, the book value per share ratio was 0.42. This explains that investors were willing to pay \$0.42 for \$1 of book value equity. Price to book value is an important measure to see how much equity shareholders are paying for the net assets value of the company. P/B ratios under 1 are typically considered solid investments.

·        Based on your analysis, what is your general perception of the company’s financial strength? Is it performing well given industry standards? How does it compare to its closest rival, HCA Healthcare? What information do you need in order to conduct such an analysis?

·        Given your review, how can it maximize shareholder value? What are focus areas for enhancing shareholder value for the long term? What short-term steps might be necessary for longer-term gains?

·        In your analysis you may choose to look at competitive data. You may calculate ratios to gain a true comparison.

·        After conducting your analysis, provide at least three recommendations to Maria that maximize shareholder value.

Deliverable Format

Create a report that tells the financial condition of this company. Your report should provide information on the following:

·        Analysis of the financial statements.

·        Evaluation of the true condition and valuation of the company.

·        Recommendation of actionable items for the company based on the financial analysis.

Financial Condition Analysis Report Requirements

Remember that you’re preparing a professional document meant for executive leadership with limited time.

·        Title Page.

Use the resources linked below to help complete this assessment.

Collapse All

Locating Financial Ratios

If you are not familiar with resources for finding financial ratios for a company, explore the following:

·        MBA Program Guide – What are Financial Ratios?

o   This Library Guide describes financial ratios and provides internet and library resources.

·        Financial Ratios for Measuring Performance | Transcript.

o   If you are unfamiliar with terminology around the topic of financial ratios, this multimedia provides terms and definitions.

·        Assessment 1: Locating Financial Ratios reading list.

Reading and interpreting financial statements can be demystified. These resources can help you to gain proficiency with financial statements; this is a critical skill in being able to assess the financial condition of a company.

·        Ross, S. A., Westerfield, R. W., Jaffe, J. F., & Jordan, B. D. (2024). Corporate finance: Core principles and applications (7th ed.). McGraw-Hill. Available in the courseroom via the VitalSource Bookshelf link.

o   These chapters look at the financial statements and introduce financial analysis tools such as trend analysis, ratio analysis, and industry average analysis.

§  Chapter 2, “Financial Statements and Cash Flow,” pages 19–41.

§  Chapter 3, “Financial Statements Analysis and Financial Models,” pages 42–81.

·        Secrets of Reading Financial Reports | Transcript.

o   Reading financial reports might feel like reading a letter written in code, so this media pieces breaks it down to demystify these very important documents. An illustration is provided to help you decode financial reports.

·        Assessment 1: Reading and Interpreting Financial Statements.

Introduction to Corporate Finance

Refer to the following resources:

·        Ross, S. A., Westerfield, R. W., Jaffe, J. F., & Jordan, B. D. (2024). Corporate finance: Core principles and applications (7th ed.). McGraw-Hill. Available in the courseroom via the VitalSource Bookshelf link.

o   Chapter 1, “Introduction to Corporate Finance.” This chapter introduces the discipline of finance and describes the structure of the corporate firm, the importance of cash flows over profits, and the primary goal of financial management: to maximize shareholder value.

·        Financial Acumen Self-Assessment.

o   This self-assessment will identify your strengths and weaknesses in financial literacy.

·        Financial Terms: Interactive Glossary Transcript.

o   This is a flashcard-style glossary of financial terms.

·        Assessment 1: Introduction to Corporate Finance.

Goals of Corporate Finance

Refer to the following reading list:

·        Assessment 1: Goals of Corporate Finance.