The HEART Hospital

Posted: August 26th, 2021

The HEART Hospital

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The HEART Hospital

1. DuPont Analysis

            DuPont analysis evaluates the three financial metrics of ROE that are financial leverage or debt financing, asset use efficiency, and business operation competence. Additionally, working efficiency is denoted by the margin ratio given by the division of the organization’s net income and total revenue. Asset use efficiency is represented assets turnover ratio calculated as the division of total revenue and assets. Furthermore, the leverage ratio is indicated by the equity multiplier, which is given by total assets divided by shareholders’ equity. Therefore, ROE in DuPont analysis is given by net income divided by shareholders’ equity. The following table 1 indicates HEART Hospital’s DuPont analysis.

Table 1: DuPont analysis

From the analysis, the equity multiplier, total margin, and ROE ratios are more significant than the industrial average ratios. It implies that the company is performing better than industry expectations. However, the hospital’s asset turnover is below the expected industry’s ratios, indicating that it should improve its revenue streams to generate more income and reduce overreliance on asset usage.

• Ratio Analysis

            Table 2 below shows the heart hospital’s ratio analysis and the expected industry average returns.

Table 2: Ratio analysis of the HEART Hospital

Interpretation and Conclusion

           From the analysis, it can be observed that the business’ ROA is greater than the expected returns. As such, it implies that the hospital is performing well and exceeds industry expectations. Additionally, the Heart Hospital’s current ratio is greater than the industry’s anticipated return, indicating that it has an excellent liquidity position. In this case, it can quickly meet its short-term financial obligations as they fall due. Equally, the organization’s day’s cash on hand is greater than the expected returns in the industry, which indicates the company has enough funds to cater for its financial responsibilities as it has a sound liquidity position. However, the hospital’s average collection time is more than the industry’s average returns. Thus, the organization should decrease the average time allocated to its creditors.

           Furthermore, the organization’s debt ratio is lower than the expected industrial returns, implying that the hospital maintains the correct debt balance. However, the debt-equity ratio of the company is greater than the expected returns. Thus it is recommended that the hospital should reduce its debt proportion towards the shareholders’ equity. The company’s times earned ratio is better than the expected returns in the industry, implying that it generates higher income against interest expenses, which is a good earnings position. Finally, the hospital’s fixed assets turnover is higher than the expected returns, implying that it generates higher revenue than the fixed asset that is a good earnings position for the company.