Financial Performance Evaluation Of Mediclinic International And NMC Health

Identifying Financial Performance

Question:

Discuss about the Behaviour of financial ratios in firm failure process.

The overall assessment mainly AIMS in identifying the financial performance of Mediclinic International and NMC Health. Relevant ratios of both the companies are mainly calculated to identify the financial performance and detect any Trend in the financial growth. With the use of vertical and horizontal analysis both the company’s rising or declining trend are detected. Furthermore, ratios such as profitability, liquidity, efficiency, and financial leverage is used to detect the financial consistency of both the companies. After the detection of the financial performance of Mediclinic International and NMC Health relevant recommendations are conducted for ABC Laboratories, which could help them in their operations.

Figure 1: Vertical analysis for income statement of Mediclinic International

(Source: As created by the author)

Figure 2: Vertical analysis for Income statement of NMC Health

(Source: As created by the author)

From the evaluation of vertical analysis for NMC health It could be identified that cost of sales of the company has relatively declined over the period which helped in boosting gross profits. However, profit from operations has also improved over the fiscal years, while profits from operations has remain constant from 2013 to 2016 indicating a higher administrative expense conducted by the organization. The rising financing cost and other expenses has relatively declined the profits from 13% to 12% in 201 (NMC 2018). From the evaluation of Mediclinic International vertical analysis of income Street relevant financial improvements can be identified. Incremental cost of sales and administrative expenses can be seen in a fiscal year. However, decline in operating profits from operations was seen in four fiscal years. The major difference in the expenses or cost incurred by Mediclinic International is the declining finance cost incurred by the organization. This relevant reduction in finance cost has posted profitability of the company from negative 3% to positive 9% in 2016 (Ir.mediclinic.com 2018).

From the valuation of figure 3 and 4, vertical analysis on balance sheet of NMC health and Mediclinic International can be identified. From the evaluation, majority of the total assets of Mediclinic International is in their noncurrent assets. This indicates low accumulation of current assets maintained by the company, to support its short-term liabilities. However. this non-accumulation of adequate inventories and cash relatively increases trade receivables of the organization. The high trade receivables would eventually indicate blockage of essential capital, which is used in the business process. More majority of the total equity and liability section is compliant with total equity, which is relatively increased in 4 fiscal years. The total liabilities section mainly holds 45.49% of the total equity and liability part of the balance sheet. the total liabilities section mainly comprises of 33.4% of non-current liabilities while current liability only 12.02%. Moreover, debt of the organization has relatively declined over the period which helped in reducing the finance cost (Ir.mediclinic.com 2018). However, trade payables have been declining over the period, which Indicates the credit provision provided to the company.

Vertical Analysis for Income Statement

The evaluation also indicates that total Assets of the organization is relatively divided in non-current and current assets, where maximum of the investment of non-current assets are conducted in property and intangibles. Moreover, the current assets investments are mainly conducted on account receivables, cash, and inventories, which will be used by NMC Health to improve its financial position. However, from the valuation it could be understood that total equity only holds 41% of total liabilities and equity of the organization.  On the other hand, 59% of total liabilities is used by NMC Health for supporting has operations. This high accumulation of debt is relatively depicting the weak financial position of NMC Health (NMC 2018).

From the evaluation it could be detected that Mediclinic International is more financially sound than NMC Health.

The evaluation of horizontal analysis mainly helps in identifying the change in trend of Mediclinic International in past 4 fiscal years. Drastic progress can be seen in revenue generation capacity of the company from 2013 to 2016. Moreover, the profitability of the organization has relatively increased by 270.68% in the four fiscal years. Moreover, the profit before tax of the organization has relatively increased due to the declining finance cost of the organization. This exponential profit witnessed by Mediclinic International is due to the loss, which incurred during 2013 (Ir.mediclinic.com 2018).

The evaluation helps in depicting the relevant increment in revenues, cost of sales and other administrative expenses incurred during the fiscal years.  the company’s overall financial performance has a relatively increased in comparison to 2016. However, the increment is not as Mediclinic International, who experienced exponential growth. This relevant increment in profits indicates the rising trend, which is obtained by the organization during the fiscal years. Therefore, it could be stated that financial position of Mediclinic is far better than NMC Health (NMC 2018).

The relevant evaluation of balance sheet mainly depicts rising trend of both total assets and total liabilities of the organization. Exponential growth in equity accounted investments can be seen from the horizontal analysis while increment in non-current assets of the company is more than its current assets. This relatively indicates the strengthening financial position of Mediclinic International due to rising assets of the organization. Moreover, the total liabilities of the company have not grown immensely, as compared to the total assets, which indicates its financial position. On the other hand, total equity section of the company has grown by 227.31% in 2016 as compared to 2013, which indicates low accumulation of debt conducted by the company (Ir.mediclinic.com 2018).

Moreover, from the valuation you could be understood that total assets of the company as its financially grown by 184% in four fiscal years (NMC 2018). The increment in non-current assets was exponentially higher than the current assets of the organization, as seen in a horizontal analysis. However, the composition of accounts receivable is relatively higher, which could relatively block essential capital. However, the equity section has experienced an exponential growth in total liabilities by 221% in 2016. On the other hand, the equity section of the company has only grown by 114%. This relatively indicates that NMC Health has accumulated debt to support its financial operations, which increases the chance of insolvency for the company.

Evaluation of Balance Sheet

Table 1: Stating the Financial ratio of NMC Health

(Source: As created by the author)

From the valuation of financial ratios relevant growth is witness in profitability ratio of NMC Health from 2013 to 2016. The financial ratios such as leverage, liquidity, and efficiency has mainly declined over the period of 4 fiscal years. This relatively indicates drawback for the organization in maintaining adequate financial position in the market. The profitability ratio of NMC Health has also not improved adequately in four fiscal years, where only gross profit margin is increased from 33.68% to 38.29%. On the other hand, net profit margin has declined from 12.55% to 12.40% (NMC 2018). Ratios such as quick ratio and accounts receivable ratio also portray financial stability of NMC Health. Financial problems can be seen in total asset turnover ratio, current ratio, debt to equity ratio, debt ratio and net profit margin has been identified for NMC Health.

Table 2: Stating the Financial ratio of Mediclinic International

(Source: As created by the author)

Improvements in profitability ratio, leverage ratio and total asset turnover ratio can be identified from the above table. This relevant increment or improvements in the ratios indicate the financial strength of Mediclinic International, which depicts financial strength of the company. The profitability ratio as a relatively improved for Mediclinic International, as gross profit margin has declined while net profit margin of the company has improved exponential. This relatively indicates that the management has curbed all the irrelevant administrative expenses. Moreover, the leverage ratio indicates that both debt to equity and debt ratio as a relatively declined indicating low accumulation of debt to finance operations of the organization. This indicates low chance of insolvency for Mediclinic International in any given period. The problematic areas that could be identified for Mediclinic International liquidity ratio and account receivables ratio, which relatively declined over the period of four fiscal years (Ir.mediclinic.com 2018).

After comparing both company’s financial ratios Mediclinic International has been identified to be the most viable company with high financial position. The financial ratios evaluated for both Mediclinic and NMC health depicts adverse evaluation, as increment in profitability would decrease financial stability of the companies. this relatively indicates that Mediclinic International has high value of profitability due to the reducing administrative cost accumulated by the company (Czajor and Michalak 2017). In addition, the ratios also indicate a solvent position for Mediclinic international. On the other hand, profitability of NMC Health has declined over the period due to the rising cost, which is evaluated from the ratio. The company’s Account receivable has improved, while net profitability has declined.

From the relevant evaluation of horizontal analysis, vertical analysis, and financial ratios relevant strong points of Mediclinic International and NMC health can be identified. The evaluation indicates that Mediclinic International as well to be improved that financial strength in the past four fiscal years by acquiring higher level of assets within the organization. The relevant increment in assets has allowed Mediclinic International to obtain high net profitability from its operations. the company has a relatively reduced its debt accumulation, while increasing the level of current assets, which could help in supporting it short term financial obligations (Shaverdi et al. 2016). The financial ratios mainly depict the strength of Mediclinic international in conducting its operations adequately.

Horizontal Analysis

The major strength of the major strength of NMC Health is its rising profitability, which is acquired by the organization.  The liquidity ratio of the company is relatively adequate where it indicates that no extra burden on inventory is are conducted, which could directly hamper its capital. The accounts receivable condition of the company has also improved over the four-fiscal year, which indicates that companies receiving the payments earlier than expected from the customer. Moreover, the evaluation also indicates the financial strength and capacity of the organization to support its ongoing operations (Ferrer and Tang 2016).

There are certain problems and challenges that is faced by both the companies, which was evaluated with the help of horizontal analysis, vertical analysis, and financial ratios. The major concern that is hindering the operations of Mediclinic International are the declining gross profit, inappropriate current ratio, and reducing efficiency ratio of the company. Moreover, from the horizontal analysis it is also indicated that the company can generate adequate profitability but relevant increment in accounts receivable is relatively reducing the cash availability to the company. The company has highly invested in non-current assets which has reduced is capability to support its current assets which is seen from the evaluation (Laitinen, Lukason and Suvas 2014).

Major problems that is identified from the operations of NMC Health is the declining net profit margin, in courses total asset turnover and rising leverage ratio. This relatively indicates that due to administrative expenses the net profit margin of the company is declining while gross profit margin is increasing. Moreover, the total asset turnover ratio is declining due to the reduced net profit obtained by the company. Furthermore, the debt accumulation of the company is relatively higher, which is increasing debt ratio and debt equity ratio in the past fiscal years. This relevant increment in debt would eventually raise the finance cost and hinder its profitability in future (Choi, Kim and Oh 2017).

Therefore, it could be understood that financial performance of both the companies has relatively improved over the fiscal years, which could be seen from the evaluation of horizontal analysis, vertical analysis, and financial ratios. Mediclinic International as a relatively improved its financial performance over the fiscal years, which could be identified from the rising financial trend of the organization. The company has increased its profitability, while reducing its actual financial expenses during the fiscal years. this relatively indicates the rising trend of the organization in acquiring higher profits each fiscal year. the company has also focus its finances in assets, which has increased exponentially over the fiscal years (Pech et al. 2015).

Moreover, NMC Health is focused in raising its overall profitability by accumulating high end revenues. However, the company’s financial performance has deteriorated due to the rising finance cost incurred by the company. The profitability has declined steadily over the 4 fiscal years, which relatively indicates the declining trend of the organization. The rising finance cost is due to the accumulation of debt that has been conducted by the company. Therefore, the financial performance of NMC Health has relatively deteriorated, due to the accumulation of high end debt (Rashid et al. 2015).

Comparison of Financial Position

The comparison between Mediclinic International and NMC Health needs to be conducted to identify the most viable option for ABC Laboratories, which could help them make their strategic decision. From the evaluation it could be identified that the financial position of NMC Health has relatively deteriorated over the fourth fiscal years due to the rising accumulation of financial debt. These financial debts were mainly conducted to increase the relevant operations of the organization and supported day to day lineage. However, this continued accumulation of debt mainly rose the total liabilities of the company reducing its actual equity to support its operations. This relatively increases the Finance cost of the organization, which reduced its actual financial strength and profitability over the fiscal years.

On the other hand, the financial evaluation of Mediclinic international mainly indicates the overall increment in profitability accumulated by the company. The increment in profit is mainly due to the rising revenue and reducing cost incurred by the company during the fiscal year. The company has exponentially reduced its overall administrative cost and Finance cost over the past fiscal years. This decline in finance cost was mainly conducted due to the reduced accumulation of debt to support operations of the company. Hence, financial viability of the organization improved over the fiscal years in comparison with NMC Health. This directly indicates financial viability of Mediclinic international for increasing its overall financial strength over the fiscal years.

Therefore, after comparing both the company’s financial performance it could be identified that Mediclinic International has high financial strength, which could be used by ABC Laboratories in their strategic decisions. Hence, it could be identified that financial performance of Mediclinic International is relatively higher than NMC Health. This segregation and identification of the financial strength could eventually allow ABC Laboratories to make adequate strategic decision to improve their financial position. The selection of NMC Health would risk the operational capability of ABC Laboratories, while the selection of Mediclinic International would boost the performance of the company (Erdogan, Erdogan and Ömürbek 2015).

From the valuation of the financial report of both performance of Mediclinic International and NMC Health can be identified. This financial evaluation could eventually help in identifying the strength and capability of the companies to support relevant collaboration with ABC Laboratories. From the valuation it could be understood that choosing Mediclinic International is most viable option for ABC Laboratories, as their financial performance has relatively increased over the four fiscal years. In addition, the company’s financial position and acid accumulation has relatively improved over the period. Therefore, it could provide a strategic improvement for ABC Laboratories to collaborate with Mediclinic international. On the other hand, NMC Health’s financial progress as well please load due to the accumulation of high debt, which could in turn hamper strategic position of ABC Laboratories. The weak financial position of NMC health makes them unsuitable for the collaboration, as they might increase financial burden on ABC Laboratories.

Conclusion:

The whole assessment focuses in identifying the financial viability of both Mediclinic International and NMC Health, which could allow ABC Laboratories to make adequate strategic decision. This decision could eventually allow ABC Laboratories to improve its financial position in the market. The recommendations are mainly conducted for Mediclinic international, as they have low financial debt and high profits. On the other hand, the financial position of NMC Health has declined over the period indicating the high debt accumulation conducted by the company. Therefore, the strategic decision could allow ABC Laboratories to provide specialized medical testing and laboratory analysis for Mediclinic International.

Reference and Bibliography:

Abdul-Baki, Z., Uthman, A.B. and Sannia, M., 2014. Financial ratios as performance measure: A comparison of IFRS and Nigerian GAAP. Accounting and Management Information Systems, 13(1), p.82.

Choi, J.Y., Kim, J. and Oh, K.J., 2017. Portfolio optimization strategy based on financial ratios. The Korean Data & Information Science Society, 28(6), pp.1481-1500.

Czajor, P. and Michalak, M., 2017. Operating Lease Capitalization-Reasons and its Impact on Financial Ratios of WIG30 and sWIG80 Companies. Przedsi?biorczo?? i Zarz?dzanie, 18(1, cz. 1 Practical and Theoretical Issues in Contemporary Financial Management), pp.23-36.

Erdogan, E.O., Erdogan, M. and Ömürbek, V., 2015. Evaluating the effects of various financial ratios on company financial performance: Application in Borsa Istanbul. Business and Economics Research Journal, 6(1), p.35.

Ferrer, R.C. and Tang, A., 2016. An empirical investigation of the impact of financial ratios and business combination on stock price among the service firms in the Philippines. Academy of Accounting and Financial Studies Journal, 20(2), p.104.

Ir.mediclinic.com. (2018). Mediclinic – Results, Reports and Presentations – Annual Reports. [online] Available at: https://ir.mediclinic.com/phoenix.zhtml?c=145797&p=irol-reports#navMainHeading [Accessed 13 Feb. 2018].

Laitinen, E.K., Lukason, O. and Suvas, A., 2014. Behaviour of financial ratios in firm failure process: an international comparison. International journal of finance and accounting, 3(2), pp.122-131.

Misund, B., 2017. Financial ratios and prediction on corporate bankruptcy in the Atlantic salmon industry. Aquaculture Economics & Management, 21(2), pp.241-260.

NMC. (2018). Annual & Financial Reports | NMC Financial Sector | Healthcare UAE. [online] Available at: https://www.nmchealth.com/financial-result-center/ [Accessed 13 Feb. 2018].

Pech, C.O.T., Noguera, M. and White, S., 2015. Financial ratios used by equity analysts in Mexico and stock returns. Contaduría y Administración, 60(3), pp.578-592.

Rashid, N.M., Norfadzilah, N.M., Noor, R.M., Mastuki, N.A. and Bardai, B., 2015. Longitudinal Study of Corporate Tax Planning: Analysis on Companies’ Tax Expense and Financial Ratios. Pertanika Journal of Social Sciences & Humanities, 23.

Shaverdi, M., Ramezani, I., Tahmasebi, R. and Rostamy, A.A.A., 2016. Combining fuzzy AHP and fuzzy TOPSIS with financial ratios to design a novel performance evaluation model. International Journal of Fuzzy Systems, 18(2), pp.248-262.

Order an Essay Now & Get These Features For Free:

Turnitin Report

Formatting

Title Page

Citation

Outline

Place an Order