Ramsay Health Care Limited Essay Sample
- Introduction – Organization Selected
The firm chosen, Ramsay Health Care Limited, is a group of companies that is primarily engaged on providing medical attention in a large portfolio of hospitals. From its inception in 1964, Ramsey Health Care Limited managed to become a global hospital group holding over 100 hospitals in three key market areas, being Australia, United Kingdom and Indonesia. In Australia, its domicile country, it is considered as the largest private organization in that industry. This calendar year, the firm further enhanced its growth strategy by acquiring Capio UK, which are the fourth largest private company administering hospitals in the United Kingdom.
The Ramsay Way Culture incepted by the management of the company, wholly portrays the mission statement of the corporation. This comprises enhancement of effective teams in order to promote originality and a constructive relationship with the clients to ultimately attain excellence in their work and adhere to the growth strategy of the firm.
- Financial Performance of Ramsay Health Care Limited
The application of proper accounting ratios in the latter section of this assignment, shows that an increasing trend in the profitability of Ramsey Health Care Limited and its consolidated entities is occurring in the time frame analysed from 2005 to 2007. The utilization of the firm’s resources was more efficient as depicted by a significant increase in the return on capital employed of 12.41% from 2005 to 2007. A material percentage in the return on capital employed is always desirable, because it signifies that the profits of the organization are substantially safe from any unforeseen changes in the business environment, such as an economic recession, new competitive actions and more. A positive movement was also noted in the net profit margin of the company. In fact it nearly doubled from 2.8% to 5.10%, thus complimenting the return on capital employed ratio. The net profit margin ratio signifies the net profit generated by the company from every $100 of service revenue attained. A higher ratio therefore reveals effective controls on the operational costs of the enterprise.
By performing a horizontal analysis on the key elements of the income statement, one can further notice the improved provided in line with the comments outlined in the previous document.
Profit and Loss Variables
|2005 to 2006|
|2006 to 2007|
|Revenue from Services||8.57||6.50|
|Profit before Interest and Taxation||(3.09)||8.30|
- Utilization of Resources at Ramsay Health Care Limited
The ability to generate sales from the resources of the company also improved as portrayed by the utilization of resources ratios determined in the latter section of this assignment. The fixed assets turn and net working capital ratio indicate the effectiveness with which the corporation has been using its fixed assets and net working capital to derive sales. This is an important element for an organization, because it is the key drive that sustains a good financial performance. One of the main responsibilities of management is to ensure that the resources provided by the stakeholders are utilized effectively in line with the firm’s mission and vision statement. In this respect, the managers of Ramsay Health Care Limited should be acclaimed for their appropriate application of managerial techniques that enhanced an efficient use of the company’s factors of production to attain their corporate objectives.
- Financial Position of Ramsay Health Care Limited
On the contrary of the financial performance, the current ratio of Ramsey Health Care Limited and its consolidated entities diminished during the years examined. This shows a significant weakness on the working capital of the organisation, since the aforesaid ratio shows the ability of the company to meet its current liabilities out of the current assets. Such weakness is further highlighted by the drastic deterioration in the capability of the most liquid assets to cover the current liabilities, portrayed through the acid test ratio. The financial position is extremely weak in 2007 since the current assets cannot fully cover the current liabilities by one time.
The debtors’ ratio however improved during the years, even though there was a slight deterioration from 2006 to 2007. This ratio diminished by 32 days from 2005 to 2006, meaning that the company’s debtors are taking 32 days less to pay the debts due. The immaterial increase of 3 days from 2006 to 2007 indicates that debtors are taking slightly more time. In light of such decrease, we can therefore contend that the credit control department on debtors control is adopting more effective controls. This is a positive element for the cash management and working capital of the organization. In view of the above one would ponder on why there was a drastic deterioration in the working capital management of the company as outlined in the previous paragraph.
The answer to such question stems by examining the salient changes in current assets and current liabilities during the years. These are portrayed in the following table:
|Current Assets/Current Liabilities Variables||2005 to 2006|
|2006 to 2007|
|Cash and cash equivalents||(27.42)||(64.50)|
|Other Current Assets||(14.57)||(31.10)|
|Assets classified as held for sale||(99.45)||0|
|Trade and other payables||(3.19)||0.30|
|Interest-bearing loans and borrowings||27.07||(73.20)|
As we can see, the decrease in the current ratio from 2005 to 2006 is mainly due to the assets classified as held for sale. While the decrease from 2006 to 2007 primarily arises from the significant reduction of 64.50% in the cash and cash equivalents. By examining the financial statements of 2006, we can note that these $585 million current assets portrayed in 2005 consisted of money due by Healthscope Limited for the disposal of 14 affinity hospitals by Ramsey Health Care Limited. This is an unusual business transaction arising from discontinued operations in one area of the business. Therefore in the current ratio analysis we should not take into account this figure and therefore such ratio remained fairly stable in 2005 and 2006.
In order to provide a full analysis of the reduction in working capital for 2007 one should consider in detail the cash and cash equivalents. The cash flow statement is a useful report in the financial statements that sheds further light on such area. The net cash flow generated from operating activities increased by a good 18.80% from 2006 to 2007 revealing that good cash flow is attained from the operations of the organization. By analysing the material changes in the investing and financing activities of the cash flow statement we can amplify such drastic decrease in cash and cash equivalents. This primarily stems from the substantial investment in property plant and equipment of $147 million and the repayment of debts amounting to $68 million. Indeed a significant decrease in cash and cash equivalents arose due to a high net cash outflow from investing and financing activities. The reduction in debts can also be noted by examining the financial stability ratios that reveal a reduction in gearing. These will be further expounded in the proceeding section. In view of the above, we can conclude that there is proper control on debtors and appropriate cash flow is being attained from the firm’s operations. However, care should be taken that sufficient cash is available for the organization to ensure that all debt obligations are met on time.
- Financial Stability of Ramsay Health Care Limited
The stability of an organization means its ability to cover its long-term financial obligations on a timely basis. A vast number of ratios are available that examine the stability of the company like debt to equity, debt to total assets and interest cover. Ramsay Health Care Group is a high-geared company, implying that a high proportion of debt exists in relation to equity. However this diminished drastically as shown by the reduction of 101.34% in the gearing ratio. In fact, the ability of the corporation to meet long term borrowing obligations out of profits improved highly, indicated by the rising interest cover ratio. A high-geared company is a risky organization due to material debt obligations, such as interest commitments. However, a potential improvement in stability is stemming from more enhanced profitability and a reduction in long-term debts. A cross sectional analysis of the gearing ratio in line with the debt to total assets ratio shows that debts are highly associated with the assets of the firm. Probably these debts were attained to finance tangible fixed assets necessary for the smooth running of the firms operations and enhancement of service provided. We ought to keep in mind that a hospital necessitates a lot of highly technological equipment to ensure proper medical examination of the clients. Management stewardship can thus be highly praised again on such area since management showed a good ability in identifying the strong areas of the company and using excessive cash to diminish stability risks when available.
- Financial Health of Ramsey Health Care Limited
The only area of concern noted in the financial analysis conducted was the drastic decrease in the cash and cash equivalents. However, appropriate measure by management can adequately mitigate such risk. For instance the utilization of short-term finance like bank overdraft can ensure a smooth running of the firm. With respect to an improving profitability and an enhancing financial stability, the company examined holds a good financial health. In this respect potential equity investors are recommended to invest in the company.
1.6 Determination of Accounting Ratios
Utilization of Resources
Anderson M. 2003. Accountancy.com, Gearing (on line). Available from: http://www.accountancy.com.pk/articles_students.asp?offset=80&id=59 (Accessed 1st January 2008).
Lewis R.; Pendrill D. (1996). Advanced Financial Accounting. Fifth Edition. London: Pitman Publishing.
Ramsey Health Care. About Ramsay Health Care (on line). Available from: http://www.ramsayhealth.com.au/profile/profile.asp (Accessed 28th December 2007).
Ramsay Health Care. Annual Report 2007 (on line). Available from: http://www.ramsayhealth.com.au/investors/docs/Market_Briefings_1810200794950.pdf (Accessed 28th December 2007).
Ramsay Health Care. Annual Report 2006 (on line). Available from: http://www.ramsayhealth.com.au/rhc/investors/docs/Market_Briefings_24102006104934.pdf (Accessed 28th December 2007).
Randall H. (1999). A Level Accounting. Third Edition. Great Britain: Ashford Colour Press Ltd.