Financial Performance Analysis Of Saratoga Care Incorporation

Company overview

With the changes in business, it is required to analysis the financial performance of Saratoga Care Incorporation. It is the listed company which is running its business on the international level. Saratoga Care Incorporation owns and operates hospitals and health care centers. It has more than 400 doctors and the units of the hospital are situating at more than 20 locations which are indulged in providing health care services around the globe.  

Description of company

This company is a voluntary not-for-profit organization incorporated in the states of New York and promotes health to the community. It is exempt to pay tax and other legal obligations.

Mission

It has the mission to promotes health to the community and provide the best level of healthcare services to the people in New York.

Vision

It has the vision to treat as much as people through its advance treatment and experts staffs members. 

Economical issue

 This company has been established as the non-profit organization with a view to offering health care services to the people. The main economic issue which has been faced by the hospital is related to time value of money.  

Competition

It is observed that there is less completion in the market as Saratoga Care Incorporation has set up the strong brand image in the market and more inclined towards providing its health care services at very low cost.

The below-given table reflects the horizontal analysis of the income statement of Saratoga Care Incorporation

(SARATOGA CARE, INC. INCOME STATEMENT Horizontal analysis
Fiscal year ends in February	2016	2015	Increase or Decrease
	Amount	Amount
Revenue	$ 29,46,44,262.00	$      27,30,72,526.00	Amount	Present
Cost of revenue	$ 28,38,96,768.00	$      26,24,91,653.00
Gross profit		$             4,010.00	-4,010	-100%
Operating expenses
Salary and wages	$ 13,53,48,912.00	$ 12,54,35,831.00	99,13,081	8%
Employee benefits	$   3,01,70,402.00	$   2,86,25,272.00	15,45,130	5%
Supplies and others	$ 10,17,58,245.00	$   9,33,70,488.00	83,87,757	9%
Depreciation and amortization	$   1,43,82,445.00	$   1,30,69,621.00	13,12,824	10%
Interest Expense	$      22,36,764.00	$      19,90,441.00	2,46,323	12%
Total operating expenses	$ 28,38,96,768.00	$ 26,24,91,653.00
Operating income	$   1,07,47,494.00	$   1,05,80,873.00
Other income (expense)	$      32,23,718.00	$      22,81,135.00	9,42,583	41%
Income before income taxes	$      32,23,718.00	$      22,81,135.00
Provision for income taxes	$                        –	$                        –
Net income from continuing operations	$      30,07,190.00	$           80,447.00
Net income available to common shareholders	$      30,07,190.00	$           80,447.00	29,26,743	3638%
Earnings per share
Basic	$                    1.92	$                    0.05	2	3638%

Analysis of the income statement

It is observed that Saratoga Care Incorporation has increased its overall revenue and profitability throughout the time. It is analyzed that there is more than 41% increment in the overall net profit earned by the company in 2016 since last one year.

3.1 Identify two growth rate

Net profit

It is the net profit earned by company from its overall revenue. Saratoga Care Incorporation has increased its net profit by 41% in 2016 as compared to last year. This shows that company has grown with the drastic rate and consistently increasing its overall revenue with the increase in its profit.

Operating Margin

After analyzing the income statement of the Saratoga Care Incorporation, it is observed that the operating margin has increased by 2% which is too low. However, the operating margin is highly impacted by the operating expenses incurred by the organization. This shows that company needs to focus on the increased operating profit (Sartori, et al.2014). 

Competition

3.2 Indicate whether you believe that these are favorable or unfavorable trends

This both points are favorable for the business organization. After analyzing all the details of the study, it is observed that company has the high amount of the net profit which is the good indicator of the development of the organization. In addition to this, operating profit margin is the way too low due to the increased in the operating expenses of the company. If the company wants to increase its overall return on capital employed then it needs to focus on reducing the overall operating expenses from its business.

There is below-given table reflects the income statement % increase and decrease since last one year.  However, the basis of the changes and % increase and the decrease is highly based on the number of sales and total revenue.

(SARATOGA CARE, INC. INCOME STATEMENT Vertical analysis
Fiscal year ends in February	2013-02	2014-02
	Amount	% of Net sales	Amount	% of Net sales
Revenue	$ 29,46,44,262.00	$               1.00	$      27,30,72,526.00	1.000
Cost of revenue	$ 28,38,96,768.00	$               1.00	$      26,24,91,653.00	1.000
Gross profit			$             4,010.00
Operating expenses
Salary and wages	$ 13,53,48,912.00	$               0.46	$ 12,54,35,831.00	45.93%
Employee benefits	$   3,01,70,402.00	$               0.10	$   2,86,25,272.00	10.48%
Supplies and others	$ 10,17,58,245.00	$               0.35	$   9,33,70,488.00	34.19%
Depreciation and amortization	$   1,43,82,445.00	$               0.05	$   1,30,69,621.00	4.79%
Interest Expense	$      22,36,764.00	$               0.01	$      19,90,441.00	0.73%
Total operating expenses	$ 28,38,96,768.00	$                  –	$ 26,24,91,653.00	0.00%
Operating income	$   1,07,47,494.00	$               0.04	$   1,05,80,873.00	3.87%
Other income (expense)	$      32,23,718.00	$               0.01	$      22,81,135.00	0.84%
Income before income taxes	$      32,23,718.00	$               0.01	$      22,81,135.00	0.84%
Provision for income taxes	$                        –	$                  –	$                        –	0.00%
Net income from continuing operations	$      30,07,190.00	$               0.01	$           80,447.00	0.03%
Net income available to common shareholders	$      30,07,190.00	$               0.01	$           80,447.00	0.03%
Earnings per share
Basic	$                    1.92		$                    0.05

There are two main expenses which have increased with the drastic rate throughout the time. It is observed that company needs to justify why there is the high increment in this two items listed below

Salary and wages- The salary and wages are given to directors and staff members have increased by 45% in 2016 which way too high as compared to last year data. It is analyzed that company needs to evaluate whether the increased amount of salary payment is feasible or not.

Supplies and others- Saratoga Care Incorporation has increased the supplies and other others throughout the time. It is observed that company has increased its overall supplies but there is no feasible correlation between supplies and total reeve of the company. It is considered that company should give proper note regarding the supplies and why it has increased its suppliers and others. It has increased its supplies by 34% in 2016 since last one year (Sartori, et al. 2014). 

5.1 Are these changes favorable or unfavorable? Why? Discuss the implications.

These both changes are not favorable for Saratoga Care Incorporation. It is evaluated that salary and wages given by the company to its employees is way too large. It impacts the profitability of the company. The company needs to evaluate whether the increased payment does not impact the profit of the company. The company has increased its sales with the less % on the other hand; the payment expenses have been increased by high % which is not the good indicator for the organization (Storey, & Greene, 2010)

Horizontal analysis of income statement

The main negative implication of these increased expenses would be seen on the profitability and overall efficiency of the company (Hall, et al. 2011).

The ratio analysis is used to evaluate the financial performance of the company.

6.1 Computation of the financial ratio 

Liquidity ratio

This ratio evaluates company’s ability to pay off its short term and long term debts with the help of current assets (Warren, & Jones, 2018).

Current ratio

Description	Formula	SARATOGA CARE, INC.
		2016	2015
Cash ratio	cash equivalents + cash / current liabilities	1.46	1.44
Current ratio	Current assets/current liabilities	3.91	3.98
Quick Ratio	Current assets-Inventory/current liabilities	3.74	3.80

 Saratoga Care Incorporation has increased its cash ratio by .02 points which are a good indicator. It will assist the organization to increase its overall production level. The current ratio of the company has gone down to 3.91 in 2016.  However, the company has a very high current ratio which needs to be decreased.   The quick ratio has also decreased to 3.74 points (Weetman, 2011).

Profitability ratio

This ratio helps in evaluating the profitability of the company.

Description	Formula	SARATOGA CARE, INC.
		2016	2015
Net profit ratio		3.6%	3.8%
Return on assets	Net profit/Total assets	3.15%	3.27%
Financial leverage	EBIT / EBIT – Interest	1.012298098	1.012996205
Asset turnover	total assets / total sales *365	417.6167712	427.2917711
Earing’s per share	Net income – pref div/shares outstanding	6.780243725	6.670527799

The net profit of company has decreased by .2% which is not the good indicator for the organization. The return on assets has also gone down to 3.15% in 2016 which is .12% lower as compared to last year. In addition to this, asset turnover of the company has also gone down, It is observed that the profitability of the company has gone down with the drastic rate which is not a good indicator (Weygandt, Kimmel & Kieso,  (2015).

Description	Formula	SARATOGA CARE, INC.
		2016	2015
Times interest earned	EBIT / Interest expenses	82.3133846	77.94553839
Cash coverage ratio	EBIT + non-cash expenses / interest expenses	82.31	77.95
Debt to Equity Ratio	Debt/ Equity	215.29	204.15

The time interest ratio of company has increased to 82 points in 2016 which is 3 points higher as compared to last year data. This shows that company has increased its overall earnings before interest and tax as compared to its interest expenses. It will increase the sustainability of the busienss (Goldmann, 2017).

Efficiency ratio  

Description	Formula	SARATOGA CARE, INC.
		2016	2015
Receivable turnover	Receivables/ Total sales*365	39.75	42.81
Inventory turnover	Inventory / cost of goods sold *365	8.73	9.12

The receivable turnover ratio of company shows how well company is efficient in maintains the capital deployment. It is observed that receivable turnover of company has gone down to 39.75 points in 2016 which is 3 points lower as compared to last year data (Gotze, Northcott, & Schuster, (2016).

6.1 The implication of the ratio on the financial health of the company 

After analyzing all the details of the study, it could be inferred that the profitability of company has gone down which is not a good indicator of the business functioning of the organization. The leverage of company has also gone down which puts negative impacts on the financial health of the company. It could be stated that company has destructed its business value by decreasing its profit and increasing its financial leverage (Higgins, 2012).

Net profit

Impacts of these changes either favorable or unfavorable

The major implication of the changes in the financial profitability would be that it will reduce the return on capital employed by the company. In addition to this, increased debt portion will also increase the overall financial leverage and reduce the efficiency of the organization. The efficiency ratio will also increase the overall cost of capital and reduce the return on capital employed.

6.2 If I were the director then ratio concern to me

In this case, I would use profitability ratio. Being a director to the organization, I would be more concerned for the profitability of the company and would ask for the answer from the team why the profitability of the company has gone down. It will assist me to identify how the profit of company could be increased (Irvin, 2016).

• Company is complying with the all the IFRS rules and regulation while preparing its financial reports.
• The financial statements of the company are audited by the KPMG audit firm.
• The Saratoga Care Incorporation has created lines of credit with available proceeds of $4,000,000.
• It has issued CRC issued tax-exempt Variable Rate Demand Revenue Bond for raising funds for its business (Magni, 2016).
• The company is a non-profit organization and exempt from all types of tax implications.  It has earned from its domestic and international investment apart from its main business.  

All the fixed assets of the company are being depreciated by using the written down value. However, the company has been separately showing all amount of depreciation amount in its depreciation and amortization account. It is separately shown in the books of account of the company at the liability side (Mathuva, 2015). 

The company has issued bonds and debentures named County of Saratoga Industrial Development Agency Civic Facility Variable Rate Demand Revenue Bonds to its bondholders. In case, if the value of these bonds increased with the time then the company may require paying the high amount of its debts if it wants to redeem these bond. It may reduce the amount of earning and result in payment burden on the organization (Enqvist, Graham, & Nikkinen, 2014).

1. Report analysis of the company

• As per the opinion of the Auditor (KPMG), the financial statement of the company is prepared as per the U.S. generally accepted accounting principles.
• The report given by the Auditor is unqualified and states that company has no discrepancies in its reporting frameworks.
• There is no issue highlighted by the auditor in the financial report of company.  He fairly stated that material respects in relation to the combined financial statements as a whole (Finnie, 2012).

The major source of cash- The major source of cash for the company is Gift and grants received from the external sources.

Deployment of cash- Saratoga Care Incorporation has invested all of its funds by making an investment in securities with a view to earning capital on the same (Gitman, Juchau, & Flanagan, 2015). 

12. Summary/ Conclusion

Saratoga Care Incorporation has increased it’s the amount blockage in its current assets and making more expenses for its operating activities. It will eventually decrease the overall profitability of the organization. The company has grown in its business which reflects that company has increased value on its investment. However, the main deficiency of the busienss is based on its increased amount of expenses for the wages and supplies. It has increased its supplies by 34% in 2016 since last one year. This will destruct the profitability and efficiency of the company at large. The financial health of the company will go down in the near future. The ratio analysis has revealed that if company wants to increase its overall return on capital employed then it needs to focus on reducing the overall operating expenses from its business. 

References

Enqvist, J., Graham, M., & Nikkinen, J., The impact of working capital management on firm profitability in different business cycles: Evidence from Finland. Research in International Business and Finance, 32, 36-49, (2014).

Finnie, J., The role of financial appraisal in decisions to acquire advanced manufacturing technology. Accounting and Business Research, 18(70), 133-139, (2012).

Gitman, L. J., Juchau, R., & Flanagan, J., Principles of managerial finance. Pearson Higher Education AU., (2015). 

Goldmann, K., Financial liquidity and profitability management in practice of polish business. In Financial Environment and Business Development (pp. 103-112). Springer, Cham., 2017

Gotze, U., Northcott, D., & Schuster, P., INVESTMENT APPRAISAL. SPRINGER-VERLAG BERLIN AN., (2016). 

Higgins, R. C., Analysis for financial management. McGraw-Hill/Irwin., (2012). 

Irvin, G., Modern cost-benefit methods: an introduction to financial, economic and social appraisal of development projects. Macmillan Education Ltd, (2016). 

Magni, C. A., An average-based accounting approach to capital asset investments: The case of project finance. European Accounting Review, 25(2), 275-286, (2016).

Mathuva, D., The Influence of working capital management components on corporate profitability (2015).

Sartori, D., Catalano, G., Genco, M., Pancotti, C., Sirtori, E., Vignetti, S., & Bo, C, Guide to Cost-Benefit Analysis of Investment Projects. Economic appraisal tool for Cohesion Policy 2014-2020.

Storey, D. J., & Greene, F. J,Small business and entrepreneurship. Financial Times/Prentice Hall (2010). 

Udomsirikul, P., Jumreornvong, S., & Jiraporn, P., Liquidity and capital structure: The case of Thailand. Journal of Multinational Financial Management, 21(2), 106-117, (2011).

Warren, C. S., & Jones, J, Corporate financial accounting. Cengage Learning, (2018). 

Weetman, P.  Financial and Management Accounting,   5th Edition  FT Prentice Hall ( 2011),

Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. Financial & managerial accounting. John Wiley & Sons (2015).