Brief financial analysis and review of Universal Health Services (NYSE: UHS)
Universal Health Services (NYSE: UHS) is one the biggest and most respected health management companies in the United States. UHS was founded in 1978 by Alan B. Miller who is the company chairman and CEO. The company operates through subsidiaries, acute care hospitals, behavioural health facilities and ambulatory centres in the US, US Virgin Islands, and Puerto Rico. The company has a strong capital position based on its balance sheets and financial position and this has enabled it develop and acquire various facilities in the past years. However, the healthcare industry is characterized with rapid change and uncertainties and UHS has to face the future with optimism (UHS, 2015).
A financial analysis of a company involves checking the stock price, income statement, the balance sheet and the cash flow statement. An analysis of the income statement of UHS for the past three financial years shows that the company has been growing its revenues from US $6.96 B in 2012 to $7.28 B in 2013 and $8.07 B in 2014. The gross profit has also been steadily increasing from $6.16B in 2012 to $ 7.17B in 2014. The net income of the company grew from $ 443.44M in 2012 to $ 510.73M in 2013 and $ 545.34M in 2014. From UHS balance sheets in the past three years, the cash grew from $ 23.47M in 2012 to $ 32.06 M in 2014. The total assets were $8.97B in 2012, $8.31B in 2013 and $8.97B in 2014. The total liabilities were $5.43B in 2012, $5.01B in 2013 and $5.18B in 2014. From the cash flow statement, the net income cash flow grew from $489.04 M in 2012 to $ 604.99 M in 2014. The net change in cash and cash equivalents for the company was $-17.75 B in 2012 and $14.83M in 2014.
Key insight about the financial health of the company
UHS has a strong financial health that is characterized by revenue growth, solid stock price performance, good cash flow, and reasonable debt position. From the analysis of UHS financial statements, there have not been significant trends in growth and profitability according to the income statement analysis. However, the revenue, gross profits and net income have experienced some growth. The revenue has grown at a rate of 2.5% per year in the last three years. UHS has an operating cash flow which is double the net income. However, the net profit margin had a low average of 6.6% in the last three years (UHS, 2015).
The cash flow statement of the company showed the cash flow from financing, from operations and from investment activities. The cash flow of the company comes from external sources which includes lenders, shareholders and investors. The company also had a positive operating cash flow which has been increasing in the past three years and this shows that the company is financially healthy. From the net change in cash and cash equivalents, the company does not have too much cash on hand and this could imply that the company is growing.
The balance sheet shows that the total assets for the company stood at $8.97B in 2014 and have been growing at a steady rate while the total liabilities were at $5.18B in 2014. It seems like the company has increased its liabilities from the previous year. The company generally has a largely solid financial position (UHS, 2015).
Likely reaction to the financial statements from various stakeholder groups
From the financial position of the company, it seems like the company is able to grow its cash and this implies that the stock prices are likely to increase. As a result, more investors are likely to invest and it shareholders could make more profits from the sale of shares and so more stocks are likely to be traded. The steady growth in revenue and cash flow shows that the investor’s and shareholder’s money is being paid back.
The steady growth in revenue and cash flow also shows that the company has enough resources to pay for expenses and asset purchases. Investors always look for a positive cash flow from operating activities and given the positive cash flow, more investors are likely to invest in the company. The cash flow from financing activities was $-187.42M and a negative cash flow is usually generated from shares that are repurchased, dividend payments are made, or when interest are paid back. The net cash from financing activities has reduced in 2014 and this implies that the company is likely to get cash in future. Shareholders and investors could find this appealing. As much as there was an increase in liabilities in 2014, the financial position of the company shows that the company still has enough resources despite the liabilities. There are also increased assets which could be appealing to investors. The company is likely to attract more investors and shareholders are likely to invest more money into the company (UHS, 2015).
The positive net income cash flow of $604.99M shows employees that the company is able to pay its employees as well as the bills. The cash flow also shows the employee that the company has enough resources for its daily operations. The financial status of the company has a healthy potential for future growth and expansion and employees have a promise of growing careers and development as a result.
Current industry trend that significantly impacts UHS
The current industry trend that has had the most significant impact on UHS financial performance is Obama care. Obama care is a federal statute that was introduced to reduce the average healthcare costs for American citizens. The statute requires healthcare providers like UHS to fulfil specific requirements that are meant to enhance quality versus quantity of care. As a result, the health care providers could either gain or lose 1% of Medicare funding. This means that health care providers that report high rates of re-admittance can lose funding while providers that have low rates of hospital re-admittance could gain more funding. The trend also requires health care providers to improve their treatments and services to reduce the likelihood of patients returning (Anderson, 2014).
This means that health care provides like UHS will need to invest in more nurses, healthcare providers, and follow up activities to ensure that the patients do not come back. UHS would most definitely incur more costs to ensure efficient health care providence. Obama care is also likely to reduce the number of patients arriving in hospitals to receive medical care. This would in turn reduce the amount of income coming to the UHS. Added to the risk of losing funds as a result of hospital re-admittance, UHS is likely to incur more costs and reduced levels of income. This may in turn affect the revenue, cash flow, profits and in turn the stock prices (Anderson, 2014).
In order to minimize the impact of Obama care on UHS, the company will need to introduce measures that will improve quality of care and reduce hospital re-admittance. The company will need to ensure that its procedures and processes are streamlined and standardized so as to reduce the operating costs. However, the company will incur additional costs while introducing the quality measures but once this is done, UHS is likely to reap more benefits from Obama care.
Strategy to improve the financial performance of UHS
In order to improve its financial performance, UHS will need to increase its revenues and cash flow. Increasing revenue and cash flow is one strategy that publicly traded companies and healthcare institutions can use to improve their financial position. This can be done through investing in new service lines in order to increase its market share. In addition, UHS will need to conduct research and look at demographics to identify what services they can introduce and what services can bring more benefits. Other factors to consider are competition in the service area and what services are likely to attract more referrals. For instance, UHS can invest in orthopaedics and oncology treatment services as these can bring more revenues to the organization. There will be no need of providing oncology services if other competitors are already providing the service as this will only increase expenses and operating costs (Berenson, Pronovost, & Krumholz, 2013).
UHS can further improve its performance by taking advantage of current industry trends like Obama care and other government regulations. UHS can invest more on activities that are likely to increase the revenue and cash flow and reduce liabilities and operating expense. For instance, it can invest in provision of quality measures needed for health care provision so as to benefit from the increased Medicare funding.