Financial Performance Analysis Of Ramsay Healthcare And Sonic Healthcare

Background Information

Ramsay Healthcare ltd is one of the leading operators in hospitals and provides health care services to the clients and hospitals as well. As per approximate figures, the company operates in around 235 hospitals and day surgery facilities across Australia, France, UK, Malaysia and Italy. The company operates in 73 hospitals in Australia itself making the country from which the business generates maximum revenues. In UK, the business has a fair share of trades with operations in 35 hospitals and also acts as an independent service provider and the services of the business are also referred by National Health Services (NHS).

It is shown in the annual report that the business employees around 60,000 employees and has around 200 pharmacies. The annual report of the company further shows that the business draws about 50% of its revenue from the operation in Australia and again around 20% from the market of UK.

The main purpose of this assessment is to analyze the financial performance of the business of Ramsay Health Care ltd which is engaged in providing healthcare services to the people and mainly operates in UK and Australia. The assessment will be making a comparative analysis of the financial statements of the business for a period of five years and then on the basis of the financial information significant ratios are to be computed. The assessment will also be considering another company for the purpose of conducting a comparative analysis of the financial performance of both the companies.

The company which is selected for the comparative analysis is Sonic Health care ltd which is regarded to be one of the close competitors of the Ramsay Healthcare Ltd. The assessment will be analyzing the financial statements which is prepared by both the business for the current year in comparison to previous year as well and with each other to establish which business has a better performance.

In addition to this, key financial ratios of the business will be computed which are related to solvency, profitability and liquidity aspects of the business (Brochet, Jagolinzer & Riedl, 2013). The main motive of the assessment is to analyze the development of business in terms of financial estimates which are to be analyzed considering a five years period. Another objective of the assessment is to set a competitive analysis in roder to under the financial position of both the business.

Ramsay Healthcare Ltd is engaged in the business of providing health care services to the customers and the business operates as a private business firm. The business has its headquarters in Australia but also has its operations in UK and France. The company specializes in providing services such as surgery, rehabilitation and psychiatric care for the clients of the business. The business is a growing business in terms of revenue and profits generation as shown in the financial statements of the business. On the other hand, the business of Sonic Healthcare ltd is engaged in providing laboratory services, pathology and radiology services to the customers of the business.

Profitability Ratio Analysis

The business of Sonic Healthcare ltd operates in the same industry as Ramsay Healthcare ltd. The company is regarded to be one of the largest diagnostic companies in the country. The company also has its operations in several other countries like UK, USA, Germany and several other countries.

Profitability Ratio Analysis

The profitability ratios of a business are computed in order to analyze the profitability of a business. The profitability ratios of the business consider the total revenue which is generated by the business during a particular year and are considered to be key for making comparative study and analysis of the financial performance of the business during the period. On the basis of the financial information which is available for Ramsay Healthcare ltd, some key profitability ratios are computed and shown below in the table.

							Growth Rate
Particulars	2013	2014	2015	2016	2017	2018	2014	2015	2016	2017	2018
Net Profit Margin	6.66%	6.77%	5.08%	5.17%	5.59%	4.48%	1.65%	-24.96%	1.77%	8.12%	-19.86%
Return on Equity	17.84%	19.51%	19.99%	22.10%	21.28%	17.36%	9.36%	2.46%	10.56%	-3.71%	-18.42%
Return on Assets	7.98%	8.56%	6.02%	6.60%	7%	5.38%	7.27%	-29.67%	9.63%	6.06%	-23.14%
Return on Invested Capital	21.45%	25.14%	19.65%	21.40%	21.43%	16.97%	17.20%	-21.84%	8.91%	0.14%	-20.81%

The above table shows the computation of net profit margin of a business, return on assets and equity and return on invested capital of the business which are considered to be key financial ratios of the business. The pie Chart which is shown in figure 4 reflects profitability ratios of the business for the year 2018. The net profit margin as shown in the table above has declined over the years which is due to the high costs of operations of the business. The net profit margin for the business for the year 2018 is shown to be 4.48% which was shown to be 6.67 in 2014. From 2014, the sales of the business has increased rapidly and so has the costs of operations and therefore there is a fall in the net profit margin of the business (Carraher & Van Auken, 2013).

The return on assets and return on equity of a business are considered to be important financial indicator for the success of the business. The return on equity has declined heavily as compared to 2017 analysis which suggest that the business is not earning enough returns on its equity and the growth is shown to be negative (Delen, Kuzey & Uyar, 2013). The return on assets of the business also demonstrate a similar trend and the growth is in negative which is shown to be -23.14%. The return on invested capital of the business is shown to be on a fall as well which is due to the fact of fall in the profits of the business.

The return on invested capital of the business is shown to be highest in 2014 for which the return on investment is computed to be 25.14% and in the next year the return on investment estimate has significantly reduced as shown in the table which is shown above. The estimate of 2015 is shown to be 19.65% which is shown to have significantly improved in the next two years which is shown to be 21.40% and 21.43% respectively. In 2018 due to the fall in the profits of the business, the estimate is shown to have considerably fallen and the same is shown to be 16.97%. The growth in this estimate is also shown to be in negative and the same is shown to be -20.81%.

Key Financial Ratios of Sonic Healthcare Ltd

The above graph portrays the profitability ratios of the business and also shows trendlines depicting growth and fluctuation in the ratios of the business. The above graph shows an analysis for a five years period as demonstrated above.

            The profitability ratios of Sonic Healthcare ltd is computed considering the estimates which are provided in the annual reports of the business. The key financial ratios relating to profitability of Sonic Healthcare ltd is shown below:

							Growth Rate
Particulars	2013	2014	2015	2016	2017	2018	2014	2015	2016	2017	2018
Net Profit Margin	9.78%	9.99%	8.46%	9.16%	8.74%	8.83%	2.15%	-15.32%	8.27%	-4.59%	1.03%
Return on Equity	11.57%	12.49%	10.70%	12.37%	11.54%	11.71%	7.95%	-14.33%	15.61%	-6.71%	1.47%
Return on Assets	6.93%	7.41%	6.18%	6.85%	6.29%	6.72%	6.93%	-16.60%	10.84%	-8.18%	6.84%
Return on Invested Capital	41.83%	9.74%	37.10%	47.16%	8.81%	9.19%	-76.72%	280.90%	27.12%	-81.32%	4.31%

The above table and graph shows the key financial ratios of Sonic Healthcare ltd which is computed considering the key profitability ratios of the business which are net profit margin. Return on equity, return on assets and return on investment of the business. The net profit margin of the business shows an estimate of 8.83% for the current year which has improved slightly in comparison to previous year analysis which is shown to be 8.74. The growth in profit margin in profit margin of the business is small and therefore there is a growth of 1,03$.

The reason for the low profits may be due to the lower sales which is achieved by the business or higher costs which are incurred by the business. The return on assets of the business is shown to have improved significantly in comparison to previous year estimates and this is a positive sign for the business. The highest return which is computed for return on assets of the business is shown to be 7.41% for 2014. The return on equity of the business for the year 2018 is shown to be 11.71% which has improved significantly in comparison to past year estimate however it is still not better than 2014 estimate which is shown to be 12.94%. The return on invested capital of the business has reduced significantly during the current year in comparison to past year analysis which needs to be considered by the management Healthcare ltd.

Comparative Analysis

As shown in the graph above, the net profit margin of Sonic Healthcare ltd is much better than Ramsay Healthcare ltd. The net profit margin is the most important estimate of profitability ratios and the same is shown to be better for Sonic Healthcare ltd. The return on assets of the business for Sonic Healthcare ltd is shown to be better than Ramsay Healthcare ltd in current year as well in past four years which suggest that the operational structure of Sonic Healthcare ltd is better than Ramsay Healthcare ltd.

The return on equity estimate which is shown for the Ramsay Healthcare ltd is shown to be 17.36% whereas the same for Sonic Healthcare ltd is shown to be 11,71% which shows that the management of Ramsay Healthcare ltd fulfills the needs of the shareholders better than Sonic Healthcare ltd. The return on investment for Ramsay Healthcare ltd is shown to be better than Sonic Healthcare ltd which is a good sign.

In an overall estimate it can be said that the profitability of Sonic Healthcare ltd is better than Ramsay Healthcare ltd and therefore the management of Ramsay Healthcare ltd needs to think about focusing on the profitability aspect of the business.

Liquidity Ratio Analysis

The liquidity ratios of a business show the cash position of the business and also the ability of the business to meet the current obligations of the business in an effective manner. The liquidity ratios of the business consist of current ratio and quick ratio which are considered to be an important indicator for the success of the business (Ongore & Kusa, 2013). In the case of Ramsay Healthcare ltd, liquidity ratios o the business is computed considering the financial statements of the business for five year and the same is presented in the table below:

							Growth Rate
Particulars	2013	2014	2015	2016	2017	2018	2014	2015	2016	2017	2018
Current Ratio	1.23	0.97	0.76	0.92	1.03	1.19	-21.14%	-21.65%	21.05%	11.96%	15.53%
Quick Ratio	1.09	0.83	0.67	0.82	0.91	1.05	-23.85%	-19.28%	22.39%	10.98%	15.38%
Net Interest Cover	7.41	7.70	6.30	6.47	6.71	6.29	3.91%	-18.18%	2.70%	3.71%	-6.26%

The above pie chart depicts the liquidity ratios of the business for the year 2018 and the various components which are included in the same. The liquidity ratios of the business are shown in the above figure and the same shows current ratio, quick ratio and net interest coverage ratio as shown in above table. The current ratio of the business is shown to be 1.19 for the year 2018 which shows that the liquidity position of the business is shown to be favorable. The current ratio of the business has improved from the year 2016 and the same has achieved growth as shown in the table above which is 15.53% for 2018.

The quick ratio of the business is similar to current ratios but considers liquid assets for computing the ratios. The quick ratio of the business is shown to be 1.05 for thee year 2018 which further shows that the liquidity position of the business is appropriate (Gitman, Juchau & Flanagan, 2015). The net interest cover of the business is shown to be 6.29 which has slightly reduced in comparison to analysis of 2017. The net interest cover ratio signifies the ability of the company to meet the current borrowings of the business effectively. The growth in the estimate for comparison between 2017 and 2018 is shown to be -6.26%.

The liquidity ratios graph is shown above figure with the help of trendlines to track the fluctuation in the ratios and their respective growth during the five years period. The liquidity ratios as depicted in the above figure shows that the management of Ramsay Healthcare Ltd are more than capable of meeting the current obligations of the business effectively. The liquidity is an important estimate which is considered by every stakeholders of a business and therefore the management should make attempts to maintain and further improve the liquidity of the business.

In case of Sonic Healthcare ltd, the liquidity ratio of the business are computed and shown in the table below:

							Growth Rate
Particulars	2013	2014	2015	2016	2017	2018	2014	2015	2016	2017	2018
Current Ratio	0.83	0.89	1.73	0.93	0.81	1.42	7.23%	94.38%	-46.24%	-12.90%	75.31%
Quick Ratio	0.77	0.83	1.60	0.86	0.75	1.30	7.79%	92.77%	-46.25%	-12.79%	73.33%
Net Interest Cover	8.08	9.96	9.93	10.51	10.13	9.04	23.27%	-0.30%	5.84%	-3.62%	-10.76%

The liquidity ratio which is computed for Sonic ltd is shown in the above graph and table. The current ratio of the business is shown to be have improved significantly during the year as shown in the table above. The current ratio is shown to be 1.42 in 2018 and the same was 0.81 in 2017 which shows that the current ratio of the business is shown to be appropriate for the business (Klingenberg et al., 2013). The quick ratios of the business also show liquidity position of the business and the same is shown to be 1.30 for 2018 which has improved tremendously during the year.

Comparative Analysis

The graph above shows that the liquidity position of Ramsay Ltd was better till 2014 and there is a fall in the liquidity in 2015 and at the same time the current ratio of Sonic ltd increased tremendously is sown to be above Ramsay Ltd. In 2017 the current ratio of Ramsay ltd is shown to be better than Sonic ltd. This shows the close competitiveness between the two companies and the graph clearly shows how well the management of both the companies plan to improve the liquidity position of the business year by year. The quick ratio of the both the companies also show similar results.

Solvency Ratio Analysis

The solvency ratios of the business are considered by analyzing the capital structure of the business. The solvency ratio of the business as shown in the computation reflects the capital structure of the business which is made up of both equity and debt capital of the business. A table showing computation of key ratios falling under solvency category is shown below:

							Growth Rate
Particulars	2013	2014	2015	2016	2017	2018	2014	2015	2016	2017	2018
Financial Leverage	2.63	2.61	4.16	4.04	3.53	3.81	-0.76%	59.39%	-2.88%	-12.62%	7.93%
Gross Gearing	81.77%	78.45%	171.80%	168.36%	141.92%	161.48%	-4.06%	118.99%	-2.00%	-15.70%	13.78%
Net Gearing	64.11%	68.86%	154.57%	152.28%	124.13%	130.00%	7.41%	124.47%	-1.48%	-18.49%	4.73%

The pie shown above relates to solvency ratios of the business for the year 2018. The above table shows computation of key solvency ratios of the business during the year. The ratios which are shown in the above figure are financial leverage, gross gearing and net gearing. The financial leverage reflects the borrowings of the business and the estimate is shown to be 3.81 and the estimate is shown to be increasing and the growth is shown to be 7.93%. The gross gearing and net gearing ratios of the business also shows the level of debt capital which is used by the business for financing the activities of the business on day to day basis (Kohansal et al., 2013).

Both gross gearing and net gearing ratio of the business has increased considerably in relation to previous year’s estimate which suggest that the application of debt capital in the business has increased considerably in the present year. The growth in gross gearing ratio and net gearing ratio in comparison to estimate of 2017 is shown to be 13.78% and 4.73% respectively.

The above graph shows the solvency ratios of the business in relation to the capital structure which is used by the business for meeting all the expenses of the business. The solvency ratios graph is shown above figure with the help of trendlines to track the fluctuation in the ratios and their respective growth during the five years period (Kanapickien? & Grundien?, 2015). The decisions which are related to capital structure are considered to be important for decision making process of the management and also for the overall development and growth of the business.

In the case of Sonic Healthcare ltd, the solvency ratios are computed in the table which is shown below:

							Growth Rate
Particulars	2013	2014	2015	2016	2017	2018	2014	2015	2016	2017	2018
Financial Leverage	1.89	1.86	1.91	1.97	2.01	1.91	-1.59%	2.69%	3.14%	2.03%	-4.98%
Gross Gearing	67.12%	63.39%	66.91%	68.98%	73.18%	65.28%	-5.56%	5.55%	3.09%	6.09%	-10.80%
Net Gearing	59.59%	55.93%	59.41%	61.20%	62.03%	57.97%	-6.14%	6.22%	3.01%	1.36%	-6.55%

The solvency ratio of the business shows the capital structure which is used by the management of the company for financing the activities of the business. Th gross gearing ratio and net gearing ratio of the business have reduced during the current year which is good sign for the business. The above graph shows gearing ratios and growth for the same.

Comparative Analysis

The above graph clearly shows that the net gearing of the business of Ramsay ltd is much more than Sonic ltd which suggest that the capital structure of Ramsay ltd is much more influenced by debt capital rather than equity capital which shows that the level of risks in the business is also high in comparison to Sonic ltd.

Industry Analysis

Profitability Analysis

As per the analysis of the financial information which are available for a number of companies, the profitability of the business which are engaged in the business of healthcare industry are shown in the graph below:

The net profit analysis of the business is shown in the graph which is shown above. The graph shows analysis for 10 companies which are engaged in healthcare sector.

Liquidity Analysis

The liquidity analysis of the industry of Healthcare is compared with the help of current assets of different companies. The liquidity of the companies will be considered on the basis of the graph shown below:

The liquidity of the business is shown in the graph which is shown above representing liquidity position of ten different companies belonging to same industry.

Solvency Analysis

The solvency analysis of the business considered financial leverage for the purpose of analyzing the capital structure which is used by ten companies as shown in figure above.

Conclusion

Ramsay Healthcare ltd is engaged in the operations of healthcare services in Australia and some other countries. The business has its own pharmacies and emergency wards.The discussion which is shown above for Ramsay Healthcare ltd shows that the financial performance of the business is appropriate and the business is heading towards growth and development. The profitability, solvency and liquidity ratios of the business which is shown in the above figure reflects the improvements in the financial position of the business.

In this report a critical analysis of the three important statements which are included in the financial statements are analyzed in a detailed process. The profit and loss statement for the business shows different elements which are included in the statement and the different activities which are undertaken by the management for generating revenues and profits for the business. Even though the revenues of the business have increased however the profit margin of the business has fallen as shown in the profit and loss statement.

The balance sheet of the business is appropriately presented showing the business has more current assets in comparison to current liabilities of the business. The cash flow statement also shows a positive net cash from operation figure which shows that the liquidity position of the business is favorable. In the second part significant financial ratios are computed and analyzed according to identify the financial performance of the business.

The above analysis also shows detailed performance analysis of the income statement, balance sheet and cash flow statement of the business. The analysis shows that profitability and liquidity ratio of Sonic ltd is better than Ramsay Healthcare ltd and therefore the management needs to come up with a plan of action in order to tackle the situation in hand. The analysis also confirms that the business is at its growth phase and there is further scope of development for the business as it proceeds further in future. The business has further good liquidity positions and also a favorable capital structure and therefore can take on any projects as there is ample amount of funds in the business.

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