American Hospital Corporation
Introduction
Hospital Corporation of America (HCA) is a proprietary hospital management company. The company has been following an acquisitive strategy by taking over hospital companies and not-for-profit hospitals. The firm is also considering expanding into new health service areas like home health care and outpatient surgery.
The company is at a crossroads with regard to its financial goals; HCA currently faces the likelihood of adverse changes to the Medicare/Medicaid policy which could strain the company’s profitability along with a substantial increase in financial leverage risks coupled with an increase in required expenditure to reap the effect of prospective operating synergies like economies of scale and scope from the acquisitions.
Discussion
Hospital Corporation of America’s performance
This section uses DuPont Analysis (Appendix 4) to breakdown and to explain the key issues impacting on HCA’s return on equity.
Profitability
HCA’s net profit margin has noticeably declined in stark contrast with that of its competitors. This is because HCA has focused on an acquisitory strategy especially by taking over not-for-profit hospitals in the short term to increase its market share in the long term instead of maximizing profits in the short term and losing out in the long run. Other competitors have focused on maximizing their bottom-lines and have not focused on acquiring not-for profit hospitals. HCA on the other hand has softened its image with lower profit margins to convince the altruistic owners of not-for-profit hospitals to sell to HCA.
Asset Efficiency
HCA’s asset turnover has declined due to its current product-market strategy as of 1981; its assets have increased at a rate faster than its revenue. HCA has acquired several old, out-dated assets which have not been able to generate revenue efficiently. Also unsophisticated and inefficient management systems resulting in the number of doubtful accounts ballooning due to the not-for profit
Hospital Corporation of America (HCA) is a proprietary hospital management company. The company has been following an acquisitive strategy by taking over hospital companies and not-for-profit hospitals. The firm is also considering expanding into new health service areas like home health care and outpatient surgery.
The company is at a crossroads with regard to its financial goals; HCA currently faces the likelihood of adverse changes to the Medicare/Medicaid policy which could strain the company’s profitability along with a substantial increase in financial leverage risks coupled with an increase in required expenditure to reap the effect of prospective operating synergies like economies of scale and scope from the acquisitions.
Discussion
Hospital Corporation of America’s performance
This section uses DuPont Analysis (Appendix 4) to breakdown and to explain the key issues impacting on HCA’s return on equity.
Profitability
HCA’s net profit margin has noticeably declined in stark contrast with that of its competitors. This is because HCA has focused on an acquisitory strategy especially by taking over not-for-profit hospitals in the short term to increase its market share in the long term instead of maximizing profits in the short term and losing out in the long run. Other competitors have focused on maximizing their bottom-lines and have not focused on acquiring not-for profit hospitals. HCA on the other hand has softened its image with lower profit margins to convince the altruistic owners of not-for-profit hospitals to sell to HCA.
Asset Efficiency
HCA’s asset turnover has declined due to its current product-market strategy as of 1981; its assets have increased at a rate faster than its revenue. HCA has acquired several old, out-dated assets which have not been able to generate revenue efficiently. Also unsophisticated and inefficient management systems resulting in the number of doubtful accounts ballooning due to the not-for profit